KT4 Partners LLC v. Palantir Technologies, Inc.

IN THE SUPREME COURT OF THE STATE OF DELAWARE
KT4 PARTNERS LLC, §
§ No. 281, 2018
Plaintiff Below, §
Appellant, § Court Below: Court of Chancery
§ of the State of Delaware
v. §
§
PALANTIR TECHNOLOGIES INC., § C.A. No. 2017-0177-JRS
§
Defendant Below, §
Appellee. §
Submitted: December 12, 2018
Decided: January 29, 2019
Before STRINE, Chief Justice; SEITZ and TRAYNOR, Justices.
Upon appeal from the Court of Chancery. AFFIRMED in part, REVERSED in
part, and REMANDED.
Bartholomew J. Dalton, Esquire, Michael C. Dalton, Esquire, DALTON &
ASSOCIATES, P.A., Wilmington, Delaware; Barry S. Simon, Esquire (Argued),
Jonathan B. Pitt, Esquire, Stephen L. Wohlgemuth, Esquire, WILLIAMS &
CONNOLLY LLP, Washington, District of Columbia, for Appellant, KT4 Partners
LLC.
Blake Rohrbacher, Esquire, Kevin M. Gallagher, Esquire, Kelly L. Freund, Esquire,
RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Kevin J. Orsini,
Esquire (Argued), Rory A. Leraris, Esquire, CRAVATH, SWAINE & MOORE
LLP, New York, New York, for Appellee, Palantir Technologies Inc.
STRINE, Chief Justice:
This appeal arises from a less-than-summary books and records action
brought under Section 220 of the Delaware General Corporation Law. The
stockholder and plaintiff below, KT4 Partners LLC, appeals from the Court of
Chancery’s post-trial order granting in part and denying in part KT4’s request to
inspect various books and records of appellee Palantir Technologies Inc., a privately
held technology company based in Palo Alto, California.
After extensive motion practice and a one-day trial, the Court of Chancery
found that KT4 had shown a proper purpose of investigating suspected wrongdoing
in three areas: (1) “Palantir’s serial failures to hold annual stockholder meetings”;
(2) Palantir’s amendments of its Investors’ Rights Agreement in a way that
“eviscerated KT4’s (and other similarly situated stockholders’) contractual
information rights after KT4 sought to exercise those rights”; and (3) Palantir’s
potential violation of two stockholder agreements by failing to give stockholders
notice and the opportunity to exercise their rights of first refusal, co-sale rights, and
rights of first offer as to certain stock transactions.1 The Court of Chancery therefore
ordered Palantir to produce the company’s stock ledger, its list of stockholders,
information about the company’s directors and officers, year-end audited financial
statements, books and records relating to annual stockholder meetings, books and
1
KT4 Partners LLC v. Palantir Techs., Inc. (Palantir Opinion), 2018 WL 1023155, at *2, *13–14
(Del. Ch. Feb. 22, 2018).
records relating to any cofounder’s sales of Palantir stock, each notice that Palantir
sent to any “Major Investor” relating to certain offerings or sales of Palantir stock,
and certain books and records relating to the Investors’ Rights Agreement
amendments.2 The court otherwise denied KT4’s requests, including its request to
inspect emails related to the Investors’ Rights Agreement amendments and its
request for an exception to a jurisdictional use restriction that the court imposed.
The Court of Chancery dealt skillfully and expeditiously with the myriad
issues dividing the parties in this contentious litigation, which is but one lawsuit
among several between them. Consistent with their feisty relationship, the parties
raise many issues on appeal. In our view, the Court of Chancery correctly applied
the law and was within its discretion in resolving most of these issues, and we need
not use many bytes addressing them.3 But, as to two issues, we do conclude that the
Court of Chancery erred.
2
KT4 Partners LLC v. Palantir Techs., Inc. (Palantir Final Order), 2018 WL 1411650, at *1–2
(Del. Ch. Mar. 20, 2018) (ORDER).
3
In addition to the two arguments we address in depth, KT4 contends that the Court of Chancery
erred by (1) “holding that the Demand did not state a valuation purpose”; and (2) “denying KT4’s
inspection of books and records necessary to investigate Palantir’s misconduct under the Investors’
Rights Agreement,” namely “relating to the actual sales of stock that should have been offered to
KT4.” Opening Br. at 4, 6. We find no error as to either issue. As to the first, the Court of
Chancery correctly concluded that KT4 stated only an “investigation of wrongdoing” purpose, not
a valuation purpose. The plain language of the Demand described KT4’s purpose as “to investigate
fraud, mismanagement, abuse, and breach of fiduciary duty committed by the Corporation, its
officers, its directors, its agents, and its majority shareholders.” App. to Opening Br. at A-1648
(KT4 Partners LLC Books and Records Demand). As to the second, the Court of Chancery did
not abuse its discretion in determining that the notices of stock transactions that Palantir sent to
stockholders and records of the cofounders’ actual sales would be enough for KT4 to investigate
wrongdoing related to a potential denial of KT4’s contractual rights to notice and participation in
2
We first hold that the Court of Chancery abused its discretion by denying
wholesale KT4’s request to inspect emails relating to the amendments of Palantir’s
Investors’ Rights Agreement. Section 220 entitles a stockholder to inspect all books
and records that are necessary to accomplish that stockholder’s proper purpose, and
on our review of the record below, KT4 made a sufficient showing that emails were
necessary to investigate potential wrongdoing related to the Investors’ Rights
Agreement amendments. Given that discovery is limited in § 220 actions, KT4
discharged its evidentiary burden by presenting evidence that Palantir did not honor
traditional corporate formalities (as suggested by its “serial failures to hold annual
stockholder meetings”4) and had acted through email in connection with the same
alleged wrongdoing that KT4 was seeking to investigate. Faced with that evidence,
Palantir failed to present any evidence of its own that more traditional materials,
such as board resolutions or minutes, even existed. And although the Court of
Chancery may have credited Palantir’s implicit suggestion that more formal books
and records would be adequate for KT4’s purposes, Palantir concedes on appeal that
no such documents exist.
those transactions. If KT4’s inspection revealed that Palantir failed to provide those notices (or
selectively provided them to only some stockholders), KT4 would have a reasonable basis to plead
breach of contract.
4
Palantir Opinion, 2018 WL 1023155, at *2, *12.
3
Ultimately, if a company observes traditional formalities, such as
documenting its actions through board minutes, resolutions, and official letters, it
will likely be able to satisfy a § 220 petitioner’s needs solely by producing those
books and records. But if a company instead decides to conduct formal corporate
business largely through informal electronic communications, it cannot use its own
choice of medium to keep shareholders in the dark about the substantive information
to which § 220 entitles them.
As to the second issue, we hold that the Court of Chancery abused its
discretion by refusing KT4’s modest requests to temper the jurisdictional use
restriction the court imposed. At Palantir’s request, the Court of Chancery imposed
a broad restriction on the use of the materials KT4 was entitled to inspect, such that
KT4 could not use them in litigation outside the Court of Chancery (except perhaps
in another court located in Delaware, should the Court of Chancery decline
jurisdiction). In imposing that limitation, the court rejected KT4’s requests that it
be allowed to bring suit: (1) in the first instance in the Superior Court, where other
litigation between the parties was already pending; and (2) for any non-derivative
action where one of Palantir’s directors, officers, or agents is named as a defendant
and that person would not consent to personal jurisdiction in Delaware, in a court
located in another jurisdiction. Given that the court found a credible basis to
investigate potential wrongdoing related to the violation of contracts executed in
4
California, governed by California law, and among parties living or based in
California, the basis for limiting KT4’s use in litigation of the inspection materials
to Delaware and specifically the Court of Chancery was tenuous in the first place,
and the court lacked reasonable grounds for denying the limited modifications that
KT4 requested.
As this Court observed in United Technologies Corp. v. Treppel, the Court of
Chancery must be cautious about limiting the jurisdictions in which a petitioner can
use in litigation the books and records it receives from a § 220 action.5 That is for
an obvious reason: § 220 itself does not contain any statutory language restricting
stockholders from using the books and records they inspect in lawsuits brought
outside of Delaware. Accordingly, Treppel rested on the premise that restrictions of
this kind are not routine and must be justified by “case-specific factors.”6 In that
case, for example, the petitioner was limited to using the records in Delaware courts
because, under the respondent corporation’s bylaws, that was the only permissible
forum in which the petitioner could bring suit, and because the other pertinent
circumstances weighed toward restricting litigation use outside of Delaware. Here,
the situation is quite different. The party seeking to impose the restriction, Palantir,
had itself sued KT4 in California. And Palantir’s bylaws did not contain a forum
5
See 109 A.3d 553, 561 (Del. 2014) (“[C]aution is needed because use restrictions under § 220(c)
have traditionally been tied to case-specific factors.”).
6
Id.
5
selection clause limiting suit to any particular jurisdiction. Not only that, but the
two major stockholder agreements at issue in this case contained California choice
of law clauses, which would give KT4 a rational basis for preferring that California
courts resolve any disputes related to those contracts. Even in the face of those facts,
KT4 did not contest being restricted to filing in Delaware in the first instance, but
only asked for limited modifications that would allow it to file suit in the Delaware
Superior Court in the first instance (instead of just the Court of Chancery) and in a
court located in another jurisdiction if potential defendants do not consent to
personal jurisdiction in Delaware.
We affirm in part and reverse in part the Court of Chancery’s final order and
judgment and remand for further proceedings consistent with this opinion.
I. Background
A. Facts7
i. KT4’s Investments in Palantir and the Stockholder Agreements
Around 2003, KT4’s principal, Marc Abramowitz, met with Palantir’s CEO,
Alex Karp, and KT4 made an initial $100,000 investment in Palantir. KT4 made
several more investments in Palantir, ultimately reaching an estimated $60 million
in value. For the next twelve years or so following KT4’s initial investment,
7
Unless otherwise noted, these facts are drawn from the Court of Chancery’s post-trial opinion.
Palantir Opinion, 2018 WL 1023155.
6
Abramowitz was “a trusted advisor to Palantir” with “unique access” to its
executives.8
In connection with these investments, KT4, Palantir, and other stockholders
entered the Investors’ Rights Agreement in June 2006; the Amended Investors’
Rights Agreement in February 2008; and, without KT4’s involvement, the Amended
and Restated Investors’ Rights Agreement in July 2015. These agreements give
“Major Investors” (including KT4) two rights central to this dispute. First, Major
Investors get a “right of first offer” as to future stock offerings, which essentially
requires Palantir to notify Major Investors whenever Palantir seeks to offer its stock
and allows Major Investors an opportunity to buy stock in the offering.9 Second,
Major Investors get “Inspection” rights, which include not only the right to inspect
books and records, but also the rights to inspect Palantir properties and discuss
Palantir’s business with its officers.10
Palantir and its investors, including KT4, also entered a First Refusal and Co-
Sale Agreement (the “First Refusal Agreement”).11 The First Refusal Agreement
gives Palantir a right of first refusal when specific investors try to sell their Palantir
stock, and certain investors (including KT4) a co-sale right and right of first refusal
8
Id. at *2.
9
Id. at *3.
10
Id. at *4 & n.29.
11
Palantir and KT4 first entered the First Refusal Agreement in June 2006, and then an Amended
and Restated First Refusal Agreement in February 2008. In July 2015, Palantir and certain other
investors (excluding KT4) entered another Amended and Restated First Refusal Agreement.
7
second to Palantir’s right of first refusal. In essence, these provisions give Palantir
the first option to buy any or all of the block of shares that a selling investor tries to
sell, and then qualifying investors get the option to buy their own pro rata portion of
the shares within the block after Palantir.12 Relevant to this appeal, the First Refusal
Agreement also contains a choice of law clause providing that the Agreement “shall
be interpreted under the laws of the State of California.”13
ii. The Falling Out and the Amendments to the Investors’ Rights Agreement
In the summer of 2015, Abramowitz’s favored status ended after Palantir’s
CEO, Karp, accused Abramowitz of stealing Palantir’s intellectual property. On that
phone call, Karp “verbally abused” Abramowitz “in a manner that [Abramowitz]
thought was irrational, somewhat unhinged, and completely contradictory to any
relationship [he] had had with [Karp] in the past.”14 After the call, Abramowitz tried
to sell KT4’s stake in Palantir to a private equity fund, but the sale fell through. At
trial, Abramowitz testified that the deal fell apart because Palantir had intentionally
12
The First Refusal Agreement also provided for certain exemptions from these right of first offer
and co-sale rights. The June 2006 and February 2008 versions of the First Refusal Agreement
exempted the first 500,000 shares that an investor tries to sell from the right of first refusal and co-
sale rights. The July 2015 version changed that provision to make the right of first refusal and co-
sale rights inapplicable to transfers that are “approved by a disinterested majority of the Board”
and do not exceed specified exemption levels. Id. at *5 (internal quotation marks omitted). Karp
had zero shares exempted.
13
App. to Opening Br. at A-1212 (Amended and Restated First Refusal and Co-Sale Agreement
§ 9).
14
Palantir Opinion, 2018 WL 1023155, at *5 (internal quotation marks omitted) (some alterations
in original).
8
thwarted the transaction, which is currently the subject of a tortious interference and
civil conspiracy lawsuit brought by KT4 against Palantir and its broker in the
Superior Court of Delaware.15
On August 16, 2016, after Abramowitz’s attempt to sell KT4’s Palantir
position failed, KT4 sent Palantir an information request under the Investors’ Rights
Agreement. At that time, KT4 had enough Palantir stock to give it informational
rights under the Investors’ Rights Agreement as a Major Investor. Palantir wrote
back five days later “stating that it was reviewing the request and would respond
soon.”16
But Palantir did not respond soon. Instead, on September 1, 2016, Palantir
executed a new set of amendments to the Investors’ Rights Agreement (the
“September 2016 Amendments”) and, on that same day, filed a lawsuit against KT4
in the Superior Court of California alleging, among other things, theft of Palantir’s
trade secrets.
The September 2016 Amendments reduced KT4’s rights under the Investors’
Rights Agreement in three key ways. First, they increased the Major Investor
threshold from five million to ten million shares, which meant that KT4—which
owned 5,696,977 shares—would no longer qualify for the right of first offer or have
15
KT4 Partners LLC v. Palantir Techs., Inc., 2018 WL 4033767 (Del. Super. Ct. Aug. 22, 2018)
(denying the defendants’ motions to dismiss).
16
Palantir Opinion, 2018 WL 1023155, at *5.
9
inspection rights under the Investors’ Rights Agreement. Second, they gave Palantir
the right to deny an inspection request if Palantir and enough Major Investors
consider the request to have been made in bad faith or for an improper purpose.
Third, they gave Palantir the right to deny access to information it “reasonably
considers to be a trade secret or similar confidential information.”17 These
amendments purported to retroactively alter KT4’s rights under the Investors’ Rights
Agreement, effectively mooting its August 16 informational request.
Summing up the circumstances surrounding the execution of the amendments,
the Court of Chancery found that Palantir had “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.”18
Like the First Refusal Agreement, each amendment to the Investors’ Rights
Agreement also contains a choice of law clause providing for California law to
govern the amendment: “This Amendment shall be governed by and construed
under the laws of the State of California as applied to agreements among California
17
Id. at *4 (internal quotation marks omitted).
18
Id. *18.
10
residents entered into and to be performed entirely within California and without
giving effect to principles of conflicts of law.”19
iii. KT4’s § 220 Demand
On September 20, 2016, KT4 sent a written demand to Palantir requesting to
inspect its books and records under 8 Del. C. § 220 (the “Demand”). As the Court
of Chancery put it, the Demand’s stated purpose 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 [right of first refusal] to purchase Palantir shares and
(6) securities fraud.20
The Demand requested general “access to the books and records of the Corporation
(including hardcopy and electronic documents and information),” as well as twenty
more specific requests, ranging from general information like financial statements
to more specific information such as books and records related to the September
2016 Amendments and Palantir’s potential breach of the First Refusal Agreement.21
19
App. to Opening Br. at A-1588 (Amendment to the Amended and Restated Investors’ Rights
Agreement of Palantir Technologies Inc. § 3); id. at A-1605 (Amendment to the Amended and
Restated Investors’ Rights Agreement of Palantir Technologies Inc. § 3).
20
Palantir Opinion, 2018 WL 1023155, at *6.
21
App. to Opening Br. at A-1645–47 (KT4 Partners LLC Books and Records Demand).
11
About a week later, Palantir rejected the Demand. Over the following months,
the parties tried to reach an agreement as to KT4’s inspection rights, with Palantir
offering KT4 in February 2017 its most recent financial statements and a
capitalization table. But KT4 rejected that limited offer.
B. Procedural History
On March 8, 2017, about half a year after sending the Demand to Palantir,
KT4 brought this § 220 action in the Court of Chancery to compel Palantir to provide
KT4 with access to the books and records requested in the Demand. Extensive
motion practice, a one-day trial, and additional post-trial motion practice ensued.
On February 22, 2018, the Court of Chancery issued a post-trial opinion
holding that KT4 had shown a proper purpose of investigating suspected
wrongdoing in three areas: (1) “Palantir’s serial failures to hold annual stockholder
meetings”; (2) Palantir’s amendment of its Investors’ Rights Agreement in a way
that “eviscerated KT4’s (and other similarly situated stockholders’) contractual
information rights after KT4 sought to exercise those rights”; and (3) Palantir’s
potential violation of the Investors’ Rights Agreement and the First Refusal
Agreement by failing to give stockholders notice and the opportunity to exercise
their rights of first refusal, co-sale rights, and rights of first offer as to certain stock
transactions.22 In so holding, the court rejected KT4’s arguments that the Demand
22
Palantir Opinion, 2018 WL 1023155, at *2, *13–14.
12
stated a valuation purpose and purposes of investigating wrongdoing related to
Palantir’s broker’s compensation, interference with KT4’s attempted stock sale to a
private equity fund, a lack of liquidity to stockholders, and Palantir’s CEO
compensation.
In its opinion, the Court of Chancery also briefly addressed the scope of
documents it would order produced. Overall, the court held that “KT4 is entitled to
inspect books and records that are essential to fulfill” its three proper “investigative
purposes.”23 The court also specifically held that KT4 was entitled to “all books and
records relating to” the September 2016 Amendments.24 The opinion did not place
any explicit limits on scope related to those books and records. The opinion also
required the parties to agree to a confidentiality agreement, but it did not place any
other limitations on the use of the documents produced.
The parties thereafter conferred on an implementing final order, but they could
not agree on certain issues, two of which are central to this appeal. First, KT4’s
proposed version of the final order provided that “‘[b]ooks and records as used
herein shall include electronically stored information (‘ESI’), such as emails,”
23
Id. at *17.
24
Id. at *18 (“KT4 is entitled to book and records related to the September 2016 IRA Amendments
as identified in Request 19.”); App to Opening Br. at A-1647 (KT4 Partners LLC Books and
Records Demand ¶ 19) (emphasis added) (requesting “all books and records relating to any
amendment or purportedly retroactive amendment to the Investors’ Rights Agreement made by
Palantir or its shareholders on September 1, 2016”).
13
whereas Palantir’s version struck that provision.25 Second, Palantir’s proposed order
contained a jurisdictional use restriction requiring any lawsuit arising out of the
inspection to be brought in the Delaware Court of Chancery, whereas KT4 proposed
modifications of that restriction that would (1) allow suit to be brought in either the
Court of Chancery or the Superior Court in the first instance; and (2) provide for the
following exception related to personal jurisdiction (the “Personal Jurisdiction
Exception”):
Notwithstanding the foregoing, KT4 may bring any non-derivative suit
arising out of the Inspection Information against any director, officer,
or agent of the Company in any jurisdiction where such director,
officer, or agent is subject to personal jurisdiction. KT4 shall, however,
provide the Company notice of such suit prior to filing. If each and
every director, officer, or agent of the Company to be named in such a
suit submits to personal jurisdiction in Delaware in writing within five
days of the Company’s receiving notice, KT4 shall bring suit in a
Delaware court. If KT4 brings such a non-derivative suit in a
jurisdiction outside of Delaware, it agrees to comply with that
jurisdiction’s procedures for obtaining confidential treatment to the
extent it cites or attaches any Confidential Material to its complaint.26
That is, the Personal Jurisdiction Exception would allow KT4 to bring any non-
derivative suit outside of Delaware when any Palantir officer, director, or agent who
is named as a defendant does not consent to personal jurisdiction in Delaware, acting
as a sort of safety valve in cases where personal jurisdiction over potential
defendants in Delaware was uncertain.
25
App to Opening Br. at A-3425 (Comparison of Proposed Final Orders and Judgments).
26
Id. at A-3428.
14
On March 20, 2018, the Court of Chancery issued an implementing Final
Order and Judgment ruling against KT4 on both of these issues.27 As to the email
issue, the parties read the Final Order to include a categorical exclusion of emails
from the documents that Palantir would be required to produce.28 Two days later,
KT4 filed a motion for limited reargument as to that exclusion, particularly as to the
September 2016 Amendments. On May 1, 2018, the Court of Chancery denied
KT4’s motion on two alternative grounds.29 First, the court held that the Demand’s
request “for ‘access to the books and records of the Corporation (including hardcopy
and electronic documents and information)’ cannot reasonably be viewed as a
targeted request for electronic mail in these circumstances.”30 In reaching that
conclusion, the court emphasized that the Demand had specifically requested emails
as to another category of books and records, which the court viewed as showing that
“KT4 was well aware of the distinction” between emails and electronic documents
generally.31 Second, the court held that “inspection of electronic mail is not essential
27
Palantir Final Order, 2018 WL 1411650.
28
The Final Order is not itself clear that it is excluding emails. See id. at *1 n.1 (“To the extent
the books and records are maintained electronically, Palantir will produce such books and records
in that format. Otherwise, ‘books and records’ as used herein shall not include electronically stored
information.”). But the court’s later Order Denying Plaintiff’s Motion for Limited Reargument
makes clear that the court did intend for the Final Order to exclude emails. KT4 Partners LLC v.
Palantir Techs., Inc. (Palantir Order Denying Reargument), 2018 WL 2045831, at *1 (Del. Ch.
May 1, 2018) (ORDER) (“[T]he Court issued a Final Order and Judgment, dated March 20, 2018,
wherein the Court declined to include electronic mail within the Inspection Information . . . .”).
29
Palantir Order Denying Reargument, 2018 WL 2045831.
30
Id. at *2.
31
Id.
15
to fulfilling KT4’s stated investigative purpose.”32 The court did not explain why or
how the non-email documents that Palantir was offering to provide would be
sufficient to allow KT4 to fulfill its investigative purpose. But the court did seem to
assume that, under its Final Order, KT4 was entitled to receive “board level
documents relating to Palantir’s consideration of amendments to the Investors’
Rights Agreement.”33
As for the jurisdictional use provision, the Court of Chancery adopted
Palantir’s proposed version word for word (the “Jurisdictional Use Restriction”):
Any claim, dispute, controversy, or cause of action between the Parties
that arises out of the Inspection Information (including, for the
avoidance of doubt, any derivative action) will be brought exclusively
in the Court of Chancery of the State of Delaware, or, if this Court
declines to exercise jurisdiction, any other state or federal court of
competent jurisdiction located in the State of Delaware.34
The Court of Chancery did not explain its reasons for rejecting KT4’s proposed
modifications.
II. Analysis
A. Issues on Appeal
On appeal, KT4 argues that the Court of Chancery erred by (1) “denying
KT4’s request to inspect emails relating to Palantir’s conduct in amending the
32
Id.
33
Id.
34
Palantir Final Order, 2018 WL 1411650, at *3.
16
Investors’ Rights Agreement and violating KT4’s contractual rights”;35 and (2)
“imposing the Jurisdictional [Use Restriction].”36
B. Standard of Review
In a § 220 action, we review for abuse of discretion the Court of Chancery’s
determination of both the scope of relief and any limitations or conditions on that
relief.37 This standard of review “is highly deferential.”38 “Undergirding this
discretion is a recognition that the interests of the corporation must be harmonized
with those of the inspecting stockholder.”39 Given “the breadth of this discretion,
Delaware courts have viewed the determination of whether to impose a condition or
limitation on an inspection as inherently case-by-case and ‘fact specific.’”40
Questions of law, however, “are reviewed de novo.”41
As a threshold matter, although the parties generally agree that abuse of
discretion is the appropriate standard of review, KT4 argues that de novo review
applies to “[t]he issue of whether a Section 220 demand for ‘all books and records’
includes a particular type of book or record” because that issue “presents a question
35
Opening Br. at 7.
36
Id. at 5.
37
Wal–Mart Stores, Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW, 95 A.3d 1264, 1271–72
(Del. 2014).
38
Id. at 1272.
39
Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1035 (Del. 1996).
40
United Techs. Corp. v. Treppel, 109 A.3d 553, 558 (Del. 2014) (quoting Espinoza v. Hewlett–
Packard Co., 32 A.3d 365, 372 (Del. 2011)).
41
Wal–Mart, 95 A.3d at 1272.
17
of law.”42 Palantir, by contrast, contends that the abuse of discretion standard applies
to this issue.43 This appears to be the first time that this Court has been asked to
determine what standard of review applies to a dispute over the meaning of a § 220
demand.
We adopt a de novo standard of review as to which types of books and records
are included in the actual written demand, except to the extent that the written
demand is ambiguous and there are factual determinations underlying the Court of
Chancery’s resolution of that ambiguity. We have previously held that, in § 220
cases, abuse of discretion is the appropriate standard of review for the scope of relief
and the limitations and conditions imposed on that relief,44 whereas de novo review
applies to questions of law, such as the applicability of attorney–client privilege45
and whether a stated purpose is proper.46 Interpreting a written demand is more
analogous to contract interpretation, which is subject to de novo review as a question
of law,47 than to the sorts of fact-intensive, judgment-based determinations that are
42
Opening Br. at 37.
43
Answering Br. at 40 (framing one of the questions presented as whether “the Court of Chancery
abused its discretion in finding that KT4 did not state a request for emails with specificity”).
Palantir does not explicitly engage with KT4’s argument that de novo review applies because the
issue presents a question of law.
44
See Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 569 (Del. 1997); Treppel,
109 A.3d at 557–58.
45
See Wal–Mart, 95 A.3d at 1272.
46
See Sec. First, 687 A.2d at 567.
47
Paul v. Deloitte & Touche, LLP, 974 A.2d 140, 145 (Del. 2009) (“Questions concerning the
interpretation of contracts are questions of law, which we review de novo.”).
18
reviewed for abuse of discretion (e.g., the appropriate scope of relief or limitations
on relief).48 Nevertheless, to the extent that factual determinations underlie the Court
of Chancery’s interpretation of an ambiguous written demand (e.g., where the court
evaluated a witness’s credibility), then deference to those factual findings must be
given.
C. The Exclusion of Emails Related to the September 2016 Amendments
KT4 first argues that the Court of Chancery erred by denying its request to
inspect emails related to the September 2016 Amendments to the Investors’ Rights
Agreement. Specifically, KT4 argues that the Court of Chancery erred by holding
that (1) the Demand did not request emails; and (2) emails were not necessary for
KT4’s investigative purpose.49 As to the first point, KT4 emphasizes that the Court
of Chancery has previously held that the term “books and records” can include
emails, and the case for including emails is especially strong “where, as here, the
request makes explicit reference to electronic documents.”50 As to the second point,
KT4 argues that board-level materials are not sufficient in this case given the
evidence that Palantir does much of its business informally. 51 And in fact, Palantir
48
E.g., 8 Del. C. § 220(c) (“The Court may, in its discretion, prescribe any limitations or conditions
with reference to the inspection, or award such other or further relief as the Court may deem just
and proper.”).
49
Opening Br. at 38–41.
50
Id. at 38.
51
Id. at 40.
19
has conceded on appeal that other than the September 2016 Amendments
themselves, responsive non-email documents do not exist.
We must first address whether, as a threshold matter, the Demand requested
emails related to the September 2016 Amendments. The Court of Chancery held
that the Demand does not request emails, reasoning that the Demand’s reference to
“electronic documents and information” did not identify emails clearly enough.52
KT4 challenges this ruling on appeal, pointing to cases in which this Court and the
Court of Chancery have held or implied that the term “books and records” includes
emails and emphasizing that the Demand “makes explicit reference to electronic
documents.”53 Palantir responds with an expressio unius argument, contending that
52
See Palantir Order Denying Reargument, 2018 WL 2045831, at *2 (“Contrary to KT4’s
assertions, its request in the Demand's preamble for ‘access to the books and records of the
Corporation (including hardcopy and electronic documents and information)’ cannot reasonably
be viewed as a targeted request for electronic mail in these circumstances.”). The trial court
elaborated:
Most corporate “books and records” are stored in electronic format, so a request to
inspect “electronic documents and information” is most reasonably construed as an
attempt to reach the company’s books and records stored in that format. KT4 was
well aware of the distinction when it made its Demand, as evidenced by its specific
demand for “email” and “correspondence” in category 22 of the Demand (not at
issue here) in addition to its more general demand for “electronic documents and
information” in the preamble.
Id.
53
Opening Br. at 38–39.
20
the express reference to email in one of the 22 specific requests for books and records
means that the Demand requested emails only as to that one specific request. 54
We agree with KT4 that the Demand requested emails. As previously noted,
the Demand requested, in relevant part:
the books and records of the Corporation (including . . . electronic
documents and information), its stock ledger, and the list of
shareholders . . . and, without limiting the foregoing, . . . the following
materials (again including . . . electronic documents and information):
. . . all books and records relating to any amendment or purportedly
retroactive amendment to the Investors’ Rights Agreement made by
Palantir or its shareholders on September 1, 2016 . . . .55
That request is drafted expansively to cover seemingly anything in the general
category of “books and records,” which has long been understood to cover both
official corporate records and less formal written communications.56 In case the
breadth of the Demand wasn’t clear enough, the Demand expressly requests—both
as part of the general request and as a preface to the specific requests—not only
“hardcopy” documents, but also “electronic documents and information.”57
“Emails,” of course, are a type of “electronic document.”58 As to the specific request
54
Answering Br. at 41–42 (“KT4’s argument that its general request for ‘hardcopy and electronic
documents and information’ constitutes a request for emails is unavailing in the context of a
Section 220 proceeding. . . . If anything, the express reference to emails in one Request suggest
that KT4 was not seeking emails in other requests that did not specifically reference emails.”
(internal citations omitted)).
55
App. to Opening Br. at A-1645–47 (KT4 Partners LLC Books and Records Demand).
56
See sources cited infra note 75.
57
App. to Opening Br. at A-1645 (KT4 Partners LLC Books and Records Demand).
58
E.g., Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 792 (Del. Ch. 2016) (“The scope of the
production . . . will include email and other electronic documents, which count as corporate books
21
for documents related to the September 2016 Amendments, that request asks for “all
books and records,”59 which is about as broad as one can get. In its opinion, the
Court of Chancery appeared to grant that request for “all books and records” in full.60
Palantir’s expressio unius argument is unconvincing. Given how many
specific requests KT4 made—22 in total—the Demand’s specific identification of
emails in just one request but not others does not provide a compelling reason to
override the apparent breadth of the Demand and the general understanding that the
term “books and records” is comprehensive.61
With that threshold issue resolved, we now turn to the core issue: whether the
Court of Chancery abused its discretion in ruling that emails were not necessary for
KT4’s purpose of investigating potential wrongdoing related to the September 2016
Amendments.
Stockholders of Delaware corporations have “a qualified common law and
statutory right to inspect the corporation’s books and records.”62 As a general matter,
and records.”). See also 2 EDWARD P. WELCH ET AL., FOLK ON THE DELAWARE GENERAL
CORPORATION LAW § 220.04 (6th ed. 2018-3 supp.) (“Inspection rights also extend to emails and
other electronically stored information.”).
59
App. to Opening Br. at A-1647 (KT4 Partners LLC Books and Records Demand ¶ 19) (emphasis
added).
60
Palantir Opinion, 2018 WL 1023155, at *18 (“KT4 is entitled to book and records related to the
September 2016 IRA Amendments as identified in Request 19.”); App to Opening Br. at A-1647
(KT4 Partners LLC Books and Records Demand ¶ 19) (requesting “all books and records relating
to any amendment or purportedly retroactive amendment to the Investors’ Rights Agreement made
by Palantir or its shareholders on September 1, 2016”).
61
See sources cited infra note 75.
62
Saito v. McKesson HBOC, Inc., 806 A.2d 113, 116 (Del. 2002).
22
an inspecting stockholder with a proper purpose “bears the burden of proving that
each category of books and records is essential to accomplishment of the
stockholder’s articulated purpose for the inspection.”63 Books and records satisfy
this standard “if they address the ‘crux of the shareholder’s purpose’ and if that
information ‘is unavailable from another source.’”64 That determination is “fact
specific and will necessarily depend on the context in which the shareholder’s
inspection demand arises.”65 Keeping in mind that § 220 inspections are not
tantamount to “comprehensive discovery,”66 the Court of Chancery must tailor its
order for inspection to cover only those books and records that are “essential and
sufficient to the stockholder’s stated purpose.”67 In other words, the court must give
the petitioner everything that is “essential,” but stop at what is “sufficient.” 68 In
other decisions, we have referred to the set of books and records that are essential
63
Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1035 (Del. 1996).
64
Wal–Mart Stores, Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW, 95 A.3d 1264, 1271
(Del. 2014) (quoting Espinoza v. Hewlett–Packard Co., 32 A.3d 365, 371–72 (Del. 2011)).
65
Espinoza, 32 A.3d at 372.
66
Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 570 (Del. 1997) (“[Section 220
proceedings and Rule 34 discovery] are not the same and should not be confused. A Section 220
proceeding should result in an order circumscribed with rifled precision. Rule 34 production
orders may often be broader in keeping with the scope of discovery under Court of Chancery Rule
26(b).”). See generally Stephen A. Radin, The New Stage of Corporate Governance Litigation:
Section 220 Demands—Reprise, 28 CARDOZO L. REV. 1287, 1336–78 (2006).
67
Thomas & Betts, 681 A.2d at 1035.
68
Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 775 (Del. Ch. 2016) (“The order should permit
access to books and records that are ‘essential’ for the plaintiff to achieve its purpose, but should
stop at the quantum of information that the court deems ‘sufficient.’” (quoting Thomas & Betts,
681 A.2d at 1035))
23
and sufficient as those that are “necessary.”69 To wit, in Saito v. McKesson HBOC,
Inc., we wrote that a stockholder with a proper purpose “should be given access to
all of the documents in the corporation’s possession, custody or control, that are
necessary to satisfy that proper purpose.”70
The issue of whether emails are “necessary” to accomplish the stockholder’s
purpose has come up explicitly in the Court of Chancery on several occasions71 and
implicitly at least once in this Court.72 In general, these decisions reflect the
69
Saito v. McKesson HBOC, Inc., 806 A.2d 113, 114–15 (Del. 2002); see also Yahoo, 132 A.3d
at 787–88 (“Subtle connotations aside, the terms ‘necessary’ and ‘essential’ are functionally
synonymous for purposes of Section 220.” (quoting Sanders v. Ohmite Hldgs., LLC, 17 A.3d 1186,
1194 n.2 (Del. Ch. 2011))).
70
Saito, 806 A.2d at 114–15.
71
See Mudrick Capital Mgmt., L.P. v. Globalstar, Inc., 2018 WL 3625680, at *9 (Del. Ch. July
30, 2018) (ordering the production of the CEO’s, general counsel’s, and two directors’ emails); In
re UnitedHealth Grp., Inc. Section 220 Litig., 2018 WL 110849, at *9–10 (Del. Ch. Feb. 28, 2018),
aff’d sub nom, 2018 WL 5309957 (Del. Oct. 26, 2018) (denying the petitioners’ request for certain
officer emails because they failed to show that the board-level and other materials that they would
receive, which included some emails, would be insufficient); Lavin v. West Corp., 2017 WL
6728702, at *14 (Del. Ch. Dec. 29, 2017) (granting inspection of various communications,
including “emails, memoranda and notes”); In re Plains All Am. Pipeline, L.P., 2017 WL 6016570,
at *4–5 (Del. Ch. Aug. 8, 2017) (ORDER) (rejecting the petitioners’ request for the CEO’s emails
“because board-level materials are sufficient for their stated purpose”); Yahoo, 132 A.3d at 791–
93 (requiring the production of the CEO’s emails); In re Lululemon Athletic Inc. 200 Litig., 2015
WL 1957196, at *5–7 (Del. Ch. Apr. 30, 2015) (explaining why the court was ordering the
company to produce some emails, but not non-employee directors’ emails from their personal
accounts); Tanyous v. Happy Child World, Inc. 2008 WL 2780357, at *7 n.50 (Del. Ch. July 17,
2008 (requiring the production of emails); Deephaven Risk Arb Trading, Ltd. v. UnitedGlobalCom,
Inc., 2005 WL 1713067, at *10 (Del. Ch. July 13, 2005) (requiring the production of “electronic
communications”); Dobler v. Montgomery Cellular Hldg. Co., 2001 WL 1334182, at *5–7 (Del.
Ch. Oct. 19, 2001) (requiring the production of emails that “reflect the decision-making of” the
corporation).
72
See Wal–Mart, 95 A.3d at 1273 (“Wal–Mart’s argument that officer-level documents are not
‘necessary and essential’ to one of IBEW’s three proper purposes is not supported by the record.”);
Ind. Elec. Workers Pension Trust Fund IBEW v. Wal–Mart Stores, Inc., 2013 WL 5636296, at *2
(Del. Ch. Oct. 15, 2013) (ORDER) (ordering the production of various officers’ “Exchange Server
24
principle that the Court of Chancery should not order emails to be produced when
other materials (e.g., traditional board-level materials, such as minutes) would
accomplish the petitioner’s proper purpose,73 but if non-email books and records are
insufficient, then the court should order emails to be produced.74 Indeed, it cannot
be otherwise if the statutory purpose of § 220 is to have meaning in a fast-moving
society where the forms in which corporate records are kept continually evolve. This
understanding—that § 220 must be interpreted in light of companies’ actual and
evolving record-keeping and communication practices—is not novel. Rather, it
follows from one earlier recognized at common law, before email became a
dominant mode of written communication, when stockholders were granted the right
to inspect a variety of corporate “papers,” often including letters and memoranda
data,” which would include emails, and the imaging of “company-issued Blackberry (or any other
relevant) devices” where Exchange Server data was unavailable).
73
See, e.g., Plains, 2017 WL 6016570, at *4–5.
74
See, e.g., Wal–Mart, 95 A.3d at 1273; Wal–Mart, 2013 WL 5636296, at *2; Yahoo!, 132 A.3d
at 791–93. See also 2 WELCH ET AL., supra, § 220.04 (2018-3 supp.) (“Inspection rights also
extend to emails and other electronically stored information.”).
25
among officers and directors.75 Today, emails and other electronic communications
do much of the work of the paper correspondence of yore.76
75
See, e.g., Nodana Petroleum Corp. v. State ex rel. Brennan, 123 A.2d 243, 246–47 (Del. 1956)
(affirming the trial court’s order allowing inspection of “[a]ll of the books, records, papers and
documents of [the corporation] which should or may pertain either directly or indirectly to any
negotiations or transactions between [the corporation] and” two members of the company’s board
of directors); Otis-Hidden Co. v. Scheirich, 219 S.W. 191, 194 (Ky. 1920) (holding that the
corporation must produce “correspondence” between the corporation’s “nonresident president,
who was the controlling stockholder, and the vice president and general manager, who had entire
charge of the business”); Pfirman v. Success Mining Co., 166 P. 216, 217 (Idaho 1917) (affirming
the trial court’s order permitting inspection of “the records, books, and papers in the office of the
[corporation] of every kind and nature and description whatsoever,” with limited exceptions);
Meyer v. Ford Indus., Inc., 538 P.2d 353, 541 (Or. 1975) (interpreting the statutory term “books
and records of account” as covering “all records, contracts, papers and correspondence to which
the common law right of inspection of a stockholder may properly apply”); State ex rel. McClure
v. Malleable Iron Range Co., 187 N.W. 646, 647–48 (Wis. 1922) (“The right of a stockholder to
examine the records and books of account of a corporation extends to all papers, contracts, minute
books, or other instruments from which he can derive any information which will enable him to
better protect his interests and perform his duties.”); White v. Manter, 84 A. 890, 890 (Me. 1912)
(“The common law gave to stockholders the right to examine the books, records, and papers of the
corporation, when the inspection was sought at proper times and for proper purposes.”); Bank of
Heflin v. Miles, 318 So. 2d 697, 466 (Ala. 1975) (“[A]t common law the inspection right covered
all the books and records of the corporation, including corporate documents, contracts and papers
. . . .”); 5A FLETCHER CYCLOPEDIA OF THE LAW OF CORPORATIONS § 2239, Westlaw (last updated
Sept. 2018) (“The right of the shareholder to inspect corporate books and records at common law
extends to all the books, papers, records, federal reports, and other data of the corporation
respecting assets, liabilities, contracts, operations and practices, including correspondence
between the controlling officers relating to the internal affairs of the corporation.”). But cf. State
ex rel. Jones v. Ralston Purina Co., 358 S.W.2d 772, 778 (Mo. 1962) (interpreting the statutory
term “books and records of account” as excluding “confidential inter-office communications”).
76
See Schattner v. Papa John’s Int’l, Inc., 2019 WL 194634, at *16 (Del. Ch. Jan. 15, 2019)
(“[R]egarding emails and text messages from personal accounts and devices[,] [t]he reality of
today’s world is that people communicate in many more ways than ever before . . . . Although
some methods of communication (e.g., text messages) present greater challenges for collection
and review than others, . . . the utility of Section 220 as a means of investigating mismanagement
would be undermined if the court categorically were to rule out the need to produce
communications in these formats.”); Tanyous, 2008 WL 2780357, at *7 n.50 (including both
emails and letters within the general category of “correspondence” to be produced in a § 220
action). See generally Francis G.X. Pileggi et al., Inspecting Corporate “Books and Records” in
a Digital World: The Role of Electronically Stored Information, 37 DEL. J. CORP. L. 163, 165
(2012) (“The overwhelming majority of information today is created and stored electronically as
e-mails, text messages, word processing documents, and web pages. Information that historically
26
In its briefing below, KT4 argued that emails were necessary to accomplish
its purpose because Palantir appeared to have chosen to conduct its corporate
business informally over email and other electronic media instead of more traditional
means, and because much of the potential wrongdoing appeared to have occurred
over email.77 As particular examples, KT4 pointed to a LinkedIn message in which
Palantir’s broker reached out to the private equity fund that KT4’s principal,
Abramowitz, was trying to get to buy KT4’s stock in Palantir (allegedly as part of
an effort by Palantir to scuttle that deal);78 “an email from Palantir in which it
misleadingly denies” its brokers role in the deal;79 and an email from Palantir in
which it led “KT4 to believe that it was considering KT4’s information request”
under the Investors’ Rights Agreement, with this latter email being a focus of the
Court of Chancery in its discussion of potential wrongdoing related to the September
2016 Amendments.80
would have been kept in ‘hard copy’ in a filing cabinet, now originates and largely remains in
electronic format, perhaps never reduced to paper.” (internal citations omitted)).
77
See App. to Opening Br. at A-3350 (Post-Trial Reply Br.) (“Email and other electronic
documents count as books and records. If Palantir chose to conduct Palantir business on those
mediums, it must produce responsive documents. This principle is especially important here,
where it appears that much of the potential wrongdoing occurred via email or other forms of
electronic communication.” (internal citations, quotation marks, and alterations omitted)); id. at
A-3393 (Letter from KT4 Partners LLC to the Court of Chancery) (“Much of the potential
wrongdoing here likely occurred over email. . . . If KT4 could not inspect those emails, its
investigation . . . would be materially incomplete.”); id. at A-3457–58 (Mot. for Limited
Reargument).
78
Id. at A-3350 (Post-Trial Reply Br.).
79
Id.
80
Id. at A-3458 (Mot. for Limited Reargument) (internal quotation marks omitted) (“Palantir’s use
of email to perpetrate its apparent misconduct is not a matter of mere speculation. The behavior
27
The crux of Palantir’s argument in response was that KT4 had simply “not
met its burden of proving that email communications are essential.”81 In making
that argument, Palantir did not buttress its claims with any evidence that other
materials would be sufficient to accomplish KT4’s purpose. Instead, it argued that
the production of emails in response to a § 220 demand “is the ‘exception rather than
the rule’—granted only where there is compelling evidence that emails are necessary
to a proper purpose.”82
In our view, KT4 made as strong of a showing that emails were necessary as
can be reasonably expected of a petitioner in a summary § 220 proceeding. Books
and records actions are not supposed to be sprawling, oxymoronic lawsuits with
extensive discovery.83 Rather, as the statutory text of § 220 itself reflects, the Court
of Chancery is entitled to “summarily order” an inspection.84 A petitioner like KT4
is therefore in no position to get discovery to determine how a company like Palantir
conducts business and whether the books and records that address its needs come in
that this Court focused on—‘lead[ing] KT4 to believe that it was considering KT4’s information
request’—occurred over email.” (quoting Palantir Opinion, 2018 WL 1023155, at *13).
81
Id. at A-3419 (Letter from Palantir Technologies Inc. to the Court of Chancery).
82
Id. at A-3463–64 (Opp’n to Mot. for Limited Reargument).
83
Chammas v. NavLink, Inc., 2015 WL 5121095, at *1 (Del. Ch. Aug. 27, 2015) (“Extensive
discovery can bog down a books and records action which is supposed to be handled on a summary
schedule.”).
84
8 Del. C. § 220(c); see also Randall S. Thomas, Improving Shareholder Monitoring and
Corporate Management by Expanding Statutory Access to Information, 38 ARIZ. L. REV. 331,
346–47 & n.88 (1996) (noting that Chancellor Seitz had added language to the draft version of
§ 220 in 1965 to “mak[e] it clear that this type of case should be given expedited treatment in the
court system,” and that the final version “created a summary procedure, with expedited discovery
on limited issues and a quick trial”).
28
the form of hardcopy documents, electronic PDFs, emails, or some other medium. 85
After all, the point of a summary § 220 action is to give the stockholder access to a
discrete set of books and records that are necessary for its purpose—a set that is
much less extensive than would likely be produced in discovery under the standards
of Rule 26 in a plenary suit.86 Contrary to Palantir’s urging, § 220 does not require
the petitioner to meet an unrealistic “compelling evidence” standard just to obtain
that discrete set of documents. Instead, a petitioner meets her burden to prove
necessity by identifying the categories of books and records she needs and presenting
some evidence that those documents are indeed necessary.87
85
See State ex rel. Cochran v. Penn-Beaver Oil Co., 143 A. 257, 260 (Del. 1926) (“[T]he parties
should agree, if possible, what books, records and papers contain the information sought, and the
inspection and examination be confined to them. If there is no such agreement, then the
peremptory writ of mandamus should be issued . . . commanding the defendant to suffer and permit
the relator . . . to inspect and make copies of such of the books, papers, accounts and writings of
the defendant mentioned in his petition, and only of such of them that under the direction of the
said court are found essential and sufficient . . . .”); State ex rel. De Julvecourt v. Pan-American
Co., 61 A. 398, 400 (Del. Super. Ct. 1904), aff’d, 63 A. 391 (Del. 1906) (“It was manifestly
impossible for the relator to tell or know what particular books or papers would furnish the
information desired. He stated the object and purpose of the inspection, and what he wished to
know, and it may well be more within the knowledge of the company than of himself what books
and papers in is possession and control would disclose the information he required to effect his
purpose.”).
86
See Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1034–35 (Del. 1996) (affirming
the trial court’s grant of limited inspection for the petitioner’s valuation purpose); Sec. First Corp.
v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 570 (Del. 1997) (“[Section 220 proceedings and
Rule 34 discovery] are not the same and should not be confused. A Section 220 proceeding should
result in an order circumscribed with rifled precision. Rule 34 production orders may often be
broader in keeping with the scope of discovery under Court of Chancery Rule 26(b).”).
87
See Thomas & Betts, 681 A.2d at 1035 (placing the burden on the petitioner show necessity as
to “each category of the books and records requested”); cf. NavLink, 2015 WL 5121095, at *1
(“Extensive discovery can bog down a books and records action which is supposed to be handled
on a summary schedule. Moreover, discovery under Court of Chancery Rule 26 is not the
29
In this case, KT4 met that burden. In its post-trial opinion, the Court of
Chancery held that KT4 sought books and records for the proper purpose of
investigating “fraud, mismanagement, abuse, and breach of fiduciary duty,” that
there was a credible basis to suspect wrongdoing related to the September 2016
Amendments to the Investors’ Rights Agreement, and that KT4 was therefore
entitled to inspect “all books and records” related to those amendments.88 To
investigate that potential wrongdoing, KT4 needed to inspect books and records in
two general categories: first, documents used by Palantir’s board (or top
management, as the case may be) in determining whether to adopt the amendments
and evidencing the company’s authorization of the amendments; and second,
documents related to Palantir’s solicitation of investor consents, including investors’
responses to those solicitations. We say “as the case may be” for a reason: it is not
clear that Palantir’s board played the role one might expect it to play in developing,
approving, and obtaining consents for the amendments. Instead, it may be that
management was solely responsible for those actions. At any rate, in many
appropriate means of gaining access to the same books and records which are the objectives of an
8 Del. C. § 220 action.”).
88
Palantir Opinion, 2018 WL 1023155, at *10–13, *18 (“KT4 has established a credible basis to
suspect wrongdoing to investigate the September 2016 IRA Amendments. Accordingly, KT4 is
entitled to books and records related to the September 2016 IRA Amendments as identified in
Request 19.”); App to Opening Br. at A-1647 (KT4 Partners LLC Books and Records Demand
¶ 19) (requesting “all books and records relating to any amendment or purportedly retroactive
amendment to the Investors’ Rights Agreement made by Palantir or its shareholders on September
1, 2016”).
30
companies, those documents might come in the form of board minutes, PowerPoint
presentations or memoranda addressed to the board, board resolutions, official
hardcopy letters from the company to investors, and other non-email documents.
But here, the Court of Chancery found that Palantir has a history of not complying
with required corporate formalities, such as the requirement that it hold annual
stockholders’ meetings.89 KT4 also submitted evidence that Palantir had conducted
other corporate business informally, including over email in connection with the
September 2016 Amendments. Fairly read, KT4 argued that (1) it needed books and
records related to how the September 2016 Amendments were authorized, who
authorized them, and why they did so; and (2) if the books and records in those
categories involved email, as seemed likely, then Palantir had to produce those
documents. That was sufficient under the circumstances of this case.
Requiring anything more of KT4 would subvert the statutory scheme
governing books and records inspections by forcing the petitioner to conduct
extensive discovery over which books and records are available and which would be
sufficient for its purposes. In effect, Palantir is asking KT4 to do the impossible:
demonstrate that the corporation in fact acted only through electronic
89
See Palantir Opinion, 2018 WL 1023155, at *2, *12 (finding that Palantir had exhibited “serial
failures to hold annual stockholder meetings”).
31
communications, even though the purpose of a books and records action is to get the
very documentary record that would allow a stockholder to make that determination.
This does not leave a respondent corporation like Palantir defenseless and
presumptively required to produce emails and other electronic communications. If
a corporation has traditional, non-electronic documents sufficient to satisfy the
petitioner’s needs, the corporation should not have to produce electronic documents.
But when a petitioner like KT4 reasonably identifies the documents it needs and
provides a basis for the court to infer that those documents likely exist in the form
of electronic mail, the respondent corporation cannot insist on a production order
that excludes emails even if they are in fact the only responsive corporate documents
that exist and are therefore by definition necessary. Instead, once the Court of
Chancery has determined the subject matter that the inspection must address, the
respondent must exercise good faith in agreeing to a final order that gives the
petitioner the books and records she needs to accomplish the purposes that the Court
of Chancery found proper.90
90
See Penn-Beaver Oil, 143 A. at 260 (“[T]he parties should agree, if possible, what books, records
and papers contain the information sought, and the inspection and examination be confined to
them.”); Pan-American, 61 A. at 400 (“It was manifestly impossible for the relator to tell or know
what particular books or papers would furnish the information desired. He stated the object and
purpose of the inspection, and what he wished to know, and it may well be more within the
knowledge of the company than of himself what books and papers in [its] possession and control
would disclose the information he required to effect his purpose.”).
32
Put another way, part of the reason why this issue between two quite
aggressive adversaries has become confusing is that they have spent more time
arguing over the form of the books and records that had to be produced rather than
the substantive nature of those books and records. The more relevant question is
what documents were necessary to fulfill KT4’s legitimate purpose (e.g., the
documents explaining the origins and purpose of the amendments, and the
solicitations used to procure investor consents). In the settle-order process in a § 220
action, it may be that a focus on this question of substance, rather than form, would
provide a more concrete basis for the parties to resolve their differences and, at the
very least, better help the Court of Chancery to decide any final disputes. Ultimately,
however, the court will be highly dependent on the respondent’s good faith
participation in the process, because the respondent is likely to be the only
participant in the settle-order process with knowledge of which corporate records
are relevant to the petitioner’s proper purpose as determined by the court.
To that point, in reviewing the Court of Chancery’s decision, we recognize
that the court likely read Palantir’s insistence that KT4 had not shown that emails
were necessary as an implicit representation that Palantir would produce the kind of
formal documents that likely would have existed had this case been filed in the
33
1980s.91 That is, the trial court likely interpreted Palantir’s position as implying that
some other set of corporate documents would be produced to satisfy KT4’s
legitimate needs. But, as it turns out, Palantir simultaneously argued that all emails
should be excluded while likely not possessing the records that are necessary to meet
KT4’s legitimate purpose under § 220—such as the communications explaining the
origins, purposes, and need for the amendments, and those used to secure internal
and investor approvals for the amendments—in non-email form. On appeal, by way
of example, Palantir conceded at oral argument that “there are no board-level
documents,” though “there may very well be emails,” and “[i]n terms of what we are
producing in response to the actual order, it is solely the [Investors’ Rights
Agreement] amendment,” with there being “no documents subject to the original
order . . . that get into the rationale for why these changes [were made].” 92 In any
event, even without the benefit of Palantir’s concession on appeal, if the Vice
Chancellor doubted that the production of emails was necessary for KT4’s proper
purposes, he could have ordered emails to be produced only if Palantir could not in
91
Compare Palantir Ordering Denying Reargument, 2018 WL 2045831, at *2 (“[I]nspection of
electronic mail is not essential to fulfilling KT4’s stated investigative purpose . . . . Unsatisfied
with board level documents relating to Palantir's consideration of amendments to the Investors’
Rights Agreement, KT4 seeks broad plenary discovery into alleged representations Palantir made
to its stockholders related to this contract. Again, full-blown fact discovery is not the point of a
Section 220 inspection.”), with App. to Opening Br. at A-3419–20 (Letter from Palantir to the
Court of Chancery) (characterizing another Court of Chancery case as “denying email inspection
where other materials were sufficient for the plaintiffs’ investigative purpose”).
92
Oral Argument Video at 29:44–30:13.
34
good faith produce other documents sufficient to fairly address the proper subjects
of the inspection. Instead, the court denied KT4’s request for emails categorically.
At bottom, the Court of Chancery found that KT4 had legitimate reasons for
wanting to know how and why Palantir made the September 2016 Amendments,
which gutted KT4’s rights under a key stockholder agreement. If the only
documentary evidence of the board’s and company’s involvement in the
amendments comes in the form of emails, then those emails must be produced. This
is not a burden of KT4’s making. If a respondent in a § 220 action conducts formal
corporate business without documenting its actions in minutes and board resolutions
or other formal means, but maintains its records of the key communications only in
emails, the respondent has no one to blame but itself for making the production of
those emails necessary. And of course, if a company has no documents at all, email
or otherwise, that show why and how its board or management authorized a key
contractual amendment, that itself is information a § 220 petitioner can use, as it
forms the basis for fact pleading that the amendment was not properly authorized.
We hold that the Demand requested emails related to the September 2016
Amendments and that the Court of Chancery abused its discretion in concluding that
those emails were not necessary for KT4’s purpose of investigating potential
wrongdoing related to the amendments. We therefore reverse the Court of
35
Chancery’s judgment in part and remand for the Court of Chancery to determine in
the first instance the scope of emails that Palantir must produce.
D. The Jurisdictional Use Restriction
The second major issue on appeal is whether the Court of Chancery abused
its discretion by adopting the Jurisdictional Use Restriction without allowing KT4
to bring suit in the Delaware Superior Court in the first instance and without KT4’s
proposed Personal Jurisdiction Exception.
To understand why we resolve these issues as we do, some context about
§ 220 and the relatively recent emergence of jurisdictional use restrictions is
necessary. Section 220 is a statute that gives stockholders with a proper purpose a
right to inspect the corporation’s books and records.93 One of the most traditional
proper purposes for a § 220 demand is the investigation of possible wrongdoing by
management.94 When a stockholder has made a colorable showing of potential
wrongdoing, inspecting the company’s books and records can help the stockholder
to ferret out whether that wrongdoing is real and then possibly file a lawsuit if
appropriate.95 Nothing in § 220’s text or our case law has ever suggested that the
only possible place a stockholder can sue using those books and records is the
93
8 Del. C. § 220(b).
94
See, e.g., Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563, 567 (Del. 1997) (“It is
well established that investigation of mismanagement is a proper purpose for a Section 220 books
and records inspection.”).
95
See Rales v. Blasband, 634 A.2d 927, 934 n.10 (Del. 1993) (suggesting the value of § 220 as a
possible “information-gathering tool in the derivative context”).
36
Delaware Court of Chancery. And as a matter of legal and factual reality,
stockholders of Delaware corporations can bring actions against the fiduciaries of
those corporations in the courts of other jurisdictions if those courts can obtain
personal jurisdiction over the defendants.
In fact, it was that reality and the wave of forum shopping by plaintiffs’
counsel in third-party, non-conflicted mergers and acquisitions governed by
Revlon96 (i.e., non-Revlon, Revlon suits97) in this century that prompted many
corporations to adopt forum selection clauses limiting internal affairs claims to the
Delaware Court of Chancery.98 It was in this context that that this Court first held
96
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (1986).
97
Unlike in Revlon, where the board had resisted selling (and especially selling to a specific
bidder), see id. at 176–79, the fact scenario in these multiforum cases typically involved boards
actively selling the corporation and seeking out buyers. The plaintiffs in these cases did not in
reality seek relief for the class or to stop the deal. Instead, they used the costs and uncertainty of
having suits in several forums at once to extract “disclosure-only” settlements resulting in the class
getting the same economic deal supposedly being challenged, but with extra disclosures. Although
these disclosures typically provided the class with nothing of substance, the plaintiffs’ lawyers got
a fee and the defendants a release from further exposure. See In re Trulia, Inc. Stockholder Litig.,
129 A.3d 884, 891–96 (Del. Ch. 2016) (explaining this dynamic); Jill E. Fisch, Sean J. Griffith &
Steven Davidoff Solomon, Confronting the Peppercorn Settlement in Merger Litigation: An
Empirical Analysis and a Proposal for Reform, 93 TEX. L. REV. 557, 581–85 (2015) (presenting
empirical evidence on disclosure-only settlements and characterizing that evidence as
“suggest[ing] that shareholders may not value the additional information from these disclosures at
least in a way that affects their vote”); Matthew D. Cain & Steven Davidoff Solomon, Takeover
Litigation in 2015, at 2–6 (Jan. 16, 2016) (unpublished manuscript),
https://ssrn.com/abstract=2715890 (cataloging the increase of disclosure-only settlements from
2005 through 2015). Forum selection clauses emerged to address this unsavory scenario, as did
the Court of Chancery’s important decisions in cases like Trulia.
98
See generally Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 943–44 (Del.
Ch. 2013) (describing the defendants’ arguments “that they have adopted forum selection bylaws
in response to corporations being subject to litigation over a single transaction or a board decision
in more than one forum simultaneously, so-called ‘multiforum litigation’”); Matthew D. Cain et
al., The Shifting Tides of Merger Litigation, 71 VAND. L. REV. 603, 617–18, 631–32 (2018)
37
that the Court of Chancery has the authority to impose jurisdictional use restrictions
in § 220 actions four years ago in United Technologies Corp. v. Treppel.99
In Treppel, the respondent corporation had a forum selection clause limiting
internal affairs claims to the Court of Chancery, and the company had already been
subject to derivative litigation in that court over the wrongdoing that the § 220
petitioner was seeking to investigate.100 In light of those circumstances, the
corporation requested that the Court of Chancery use its discretion under § 220(c)101
to limit the petitioner’s use of the inspection materials in litigation to cases brought
in the Court of Chancery.102 But the Court of Chancery concluded that it lacked the
authority to impose such a limitation.103
On appeal, this Court reversed the Court of Chancery’s determination that it
lacked that authority and remanded the case for the Court of Chancery to determine
in the first instance whether a jurisdictional use restriction would be appropriate
(explaining forum selection clauses as a response to multijurisdictional merger litigation). In
Chevron, the boards of the defendant corporations had characterized the purpose of their forum
selection bylaws as “to minimize or eliminate the risk of what they view as wasteful duplicative
litigation,” which “imposes high costs on the corporations and hurts investors by causing needless
costs that are ultimately born by stockholders.” Chevron, 73 A.3d at 944.
99
109 A.3d 553 (2014). See DONALD J. WOLFE & MICHAEL A. PITTENGER, CORPORATE AND
COMMERCIAL PRACTICE IN THE DELAWARE COURT OF CHANCERY § 9.07 n.408 (2d ed. 2018)
(characterizing Treppel as being concerned with the “corporation’s ‘legitimate concern’ of being
burdened by duplicative, multi-forum litigation” (quoting Treppel, 109 A.3d at 560–62)).
100
Treppel, 109 A.3d at 555–56.
101
8 Del. C. § 220(c) (“The Court may, in its discretion, prescribe any limitations or conditions
with reference to the inspection, or award such other or further relief as the Court may deem just
and proper.”).
102
Treppel, 109 A.3d at 556.
103
Id. at 557.
38
under the fact-specific circumstances of that case.104 To guide the Court of Chancery
on remand, we cited four factors that, in that particular case, the court would be
entitled to give weight:
(i) the fact that [the stockholder seeking inspection] seeks to file claims
arising out of the same corporate conduct that was already the subject
of derivative litigation in the Court of Chancery and this Court; (ii) [the
corporation’s] legitimate interest in having consistent rulings on related
issues of Delaware law, and having those rulings made by the courts of
this state; (iii) [the corporation’s] adoption of a forum selection bylaw
that represents a non-case-specific determination by its board of
directors that internal affairs litigation involving the company should
proceed in a single forum; and (iv) the investment the corporation has
already made (which comes at a cost to its stockholders) in defending
not only the prior derivative litigation in the Court of Chancery, but also
this § 220 action.105
We reasoned that those factors could reasonably support the imposition of a
jurisdictional use restriction “because they involve a legitimate concern on [the
corporation’s] part that it and its stockholders could face excessive costs and the risk
of inconsistent rulings if [the petitioner] were to file suit elsewhere.”106 We also
emphasized, however, that “caution is needed because use restrictions under
§ 220(c) have traditionally been tied to case-specific factors.”107
104
Id. at 559, 562.
105
Id. at 560.
106
Id.
107
Id. at 561; see also 2 WELCH ET AL., supra, § 220.04 (2018-2 supp.) (“Delaware courts view
the determination of whether to impose a condition or limitation on an inspection on a ‘case-by-
case’ and ‘fact specific’ basis in an effort ‘to protect the legitimate interests of Delaware
corporations.’” (quoting Treppel, 109 A.3d at 558–59)).
39
To our knowledge, Treppel—a case decided just a few years ago—was the
first time there was litigation over a jurisdictional use restriction in a § 220 action.108
In other words, despite the long history of litigation under § 220, the imposition of
jurisdictional use restrictions was a new phenomenon, and not at all a common
condition to be routinely imposed. Treppel itself signaled as much.
But, in this case, Palantir acted as if it was to be expected that any relief for
KT4 would be conditioned on a jurisdictional use restriction in Palantir’s favor.
Thus, when Palantir urged the trial court to adopt a broad jurisdictional use
restriction limiting suit arising out of KT4’s inspection to the Delaware Court of
Chancery, it argued that “[j]urisdictional provisions mandating that suits arising out
of Section 220 proceedings must be brought in Delaware courts are the norm in the
Court of Chancery, and there is no reason to deviate from that norm here.”109 And
KT4 itself largely accepted this proposition below by saying it would accept a final
judgment that would limit suit to courts located in Delaware, subject only to having
the right to bring suit in (1) either the Court of Chancery or the Superior Court and
(2) another jurisdiction if any director, officer, or agent of Palantir who is named as
108
In their extensive discussions of § 220, the key Delaware treatises cite no example of a case
addressing a jurisdictional use restriction before Treppel, or any example of the Court of Chancery
imposing such a restriction before then. See 1 R. FRANKLIN BALOTTI & JESSE A. FINKELSTEIN,
DELAWARE LAW OF CORPORATIONS & BUSINESS ORGANIZATIONS § 7.47 (3d ed. 2019-1 supp.); 2
WELCH ET AL., supra, § 220.04; WOLFE & PITTENGER, supra, § 9.07[j].
109
App. to Opening Br. at A-3422 (Letter from Palantir to the Court of Chancery) (emphasis
added).
40
a defendant does not consent to personal jurisdiction in Delaware (the “Personal
Jurisdiction Exception”).
Without explaining its reasons, the Court of Chancery ruled against KT4 on
both counts. As to the first issue, the court limited suit between the parties arising
out of the inspection to the Court of Chancery exclusively, except in cases where the
Court of Chancery declines jurisdiction, in which case suit could be brought in
another state or federal court located in Delaware. As to the personal jurisdiction
issue, the court denied KT4’s request for a carve-out that would allow it to bring suit
in other jurisdictions under limited circumstances, opting instead to simply limit suit
to Delaware.
On appeal, KT4 takes issue with both rulings, arguing that the Jurisdictional
Use Restriction is unreasonable under the circumstances of this case. In particular,
KT4 emphasizes that one of its investigative purposes was to assess whether Palantir
and its cofounders had breached the Investors’ Rights Agreement or First Refusal
Agreement, which are contractual claims that it should be able to bring outside the
Court of Chancery, and that many of the necessary parties to any breach of contract
action based on these agreements (e.g., Karp and other Palantir cofounders) are
California residents who may not be subject to personal jurisdiction in Delaware.110
110
Opening Br. at 30–31; Reply Br. at 15–18.
41
KT4 also contends that the Court of Chancery failed to analyze any of the “case-
specific factors” mentioned in Treppel (or indeed, any case-specific factors at all).111
For its part, Palantir offers a more tepid form of its robust argument below in
favor of the restriction it sought. At oral argument, Palantir backed away from its
statement to the court below that jurisdictional use restrictions were the norm in the
Court of Chancery.112 Instead, Palantir contends that any claim arising out of KT4’s
investigation “would have to be brought against the Founders in their capacity as
fiduciaries,” and that KT4 has not explained why that would not be possible in the
Delaware Court of Chancery.113 To justify the imposition of the Jurisdictional Use
Restriction more generally, Palantir cites two factors: first, Delaware’s “expertise in
corporate law”; and second, the possibility that Palantir and its stockholders might
“face excessive costs and the risk of inconsistent rulings” if similar lawsuits were
litigated elsewhere.114 Palantir does not, however, identify any investors other than
KT4 who have threatened suit.
As we have noted, § 220 provides no textual basis for the imposition of
jurisdictional use restrictions as the “norm.” And Treppel, which remains the only
case in which this Court has addressed the circumstances under which a
111
Opening Br. at 30.
112
See Oral Argument Video at 32:17–19 (“I don’t think anyone had said it was a norm.”). In
reality, Palantir did make that statement, but it is correct that there is and should be no norm to that
effect until the General Assembly amends § 220 to impose that norm through legislation.
113
Answering Br. at 33.
114
Id. at 31 (quoting Treppel, 109 A.3d at 560) (internal quotation marks omitted).
42
jurisdictional use restriction may be imposed, involves facts that, by their contrast
with this case, illustrate the problematic nature of the Court of Chancery’s assent to
Palantir’s aggressively sought restriction.
In Treppel, the corporation subject to the books and records request had in
place a forum selection clause.115 When the petitioner in the § 220 action sought
books and records, likely with the ultimate goal of bringing a derivative action
alleging breach of fiduciary duties under Delaware law, the respondent corporation
logically argued that the Court of Chancery was entitled to take into account the
corporation’s governing instruments and limit lawsuits using the inspection
materials to a forum consistent with those governing instruments.116 Further
supporting the case for a restriction, the respondent corporation had already been
sued in derivative litigation in Delaware over the same alleged wrongdoing that the
petitioner was seeking to investigate. Underscoring the importance of not reading
into § 220 a sweeping restriction on stockholder rights not found in its text, this
Court reversed the Court of Chancery’s determination that it lacked the authority to
impose a jurisdictional use restriction, but did so cautiously even in a situation when
the company’s request for the restriction was amply supported by its bylaws and the
circumstances of the petitioner’s demand.
115
Treppel, 109 A.3d at 560.
116
See id.
43
The case-specific factors that are relevant in this case, by contrast, cut strongly
against the imposition of a jurisdictional use restriction. For starters, Palantir has no
forum selection clause limiting investors like KT4 to bringing suit in the Delaware
Court of Chancery, or even more generally courts in Delaware (state or federal).117
Second, the efficiency rationale for imposing a jurisdictional use restriction is much
weaker here than in Treppel. Unlike the corporation in Treppel, Palantir is a private
company with a discrete set of investors and is therefore less likely than a public
company to face the potential for multiforum class or derivative actions, and there
was no prior litigation against it in Delaware related to the purposes that the Court
of Chancery found proper.118 And although Palantir has adverted to the possibility
of inconsistent judgments, it has not pointed to any plausible plaintiff who might be
in a similar situation to KT4. In fact, Palantir’s proposed jurisdictional use
restriction had the unusual effect of expanding the judicial forums in which it and
KT4 are fighting. After all, the first litigation between the parties was brought by
Palantir itself in the California Superior Court, and the second plenary litigation
(putting aside this summary § 220 action) was brought by KT4 in the Delaware
Superior Court. But, instead of channeling the use of the books and records obtained
117
See App. to Opening Br. at A-2332–47 (Bylaws of Palantir Technologies Inc.).
118
Although KT4 filed a tortious interference lawsuit against Palantir in the Superior Court of
Delaware, that lawsuit related to one of the purposes that the Court of Chancery expressly found
improper (investigating wrongful interference with Abramowitz’s attempts to sell KT4’s stock).
See Palantir Opinion, 2018 WL 1023155, at *16.
44
by KT4 into one of those two existing forums in which the parties have been fighting,
Palantir sought a jurisdictional use restriction that requires KT4 to file suit
exclusively in the Delaware Court of Chancery, with the end result being three
different judges in three different courts will simultaneously handle litigation
between the parties.
Put simply, unlike in Treppel, where the jurisdictional use restriction
promoted the efficiency-oriented goals of the corporation’s forum selection clause
and preventing multiple forums from addressing related disputes, the Jurisdictional
Use Restriction in this case expands the number of forums in which these fierce
adversaries would simultaneously litigate over issues where there was likely to be
overlapping documentary discovery and witness testimony.
Just as important, the corporation’s interest in this case in having Delaware
courts address issues of Delaware law is weak compared to Treppel. In Treppel, the
petitioner sought books and records to bring claims for wrongdoing under Delaware
corporate law, and the respondent corporation sought, consistent with its forum
selection clause, to limit the use of those books and records to lawsuits brought in
the Delaware Court of Chancery. In this case, by contrast, California is central to
some of the possible claims that KT4 seeks to investigate by inspecting Palantir’s
books and records. The Court of Chancery explicitly described KT4’s third proper
45
purpose in terms of “alleged violations of its stockholder agreements,”119 and both
of those agreements (the Investors’ Rights Agreement and the First Refusal
Agreement) include choice of law clauses providing for California law. Even as to
the second proper purpose (investigating suspected wrongdoing related to the
September 2016 Amendments), potential claims by KT4 could include not only
fiduciary duty claims related to those actions, but also contractual claims based on
the implied covenant of good faith and fair dealing, which may turn out differently
under California law than they would under Delaware law.120 For these reasons,
KT4 would have a rational basis for preferring that a California court address issues
of California law.
Although KT4 agreed—as these circumstances did not require it to do—to a
final judgment that limited its ability to file suit outside of Delaware, KT4 only asked
the trial court to temper that restriction in two ways that had a rational basis. The
first change merely sought to ensure that KT4 could file a claim in the Superior Court
of Delaware, where it could get a jury trial and where it already had a pending lawsuit
against Palantir, because some of its claims would be for breach of contract. These
119
Id. at *18.
120
Compare Cal. Lettuce Growers v. Union Sugar Co., 289 P.2d 785, 791 (Cal. 1955) (“[W]here
a contract confers on one party a discretionary power affecting the rights of the other, a duty is
imposed to exercise that discretion in good faith and in accordance with fair dealing.”), with
Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 411 (Del. 2005) (“The covenant is best
understood as a way of implying terms in the agreement . . . . [I]mplied good faith cannot be used
to . . . create a free-floating duty . . . .” (internal quotation marks omitted)).
46
are sensible reasons, devoid of any impropriety. But, for reasons it did not explain,
the Court of Chancery denied KT4 this right. Although we understand the Court of
Chancery’s desire to limit possible forum shopping by KT4, we fail to understand
the contextual, much less statutory, basis on which Palantir is entitled to condition
its production of books and records on a requirement that KT4 file any resulting
lawsuit in our Court of Chancery rather than our Superior Court.
Even more important, KT4 asked for a reasonable safeguard intended to allow
it to proceed in other jurisdictions, such as California, in the event that key
individuals do not consent to personal jurisdiction in Delaware. That is, KT4 wanted
to try in Delaware first, but with a safety valve in case personal jurisdiction over
certain potential defendants might be lacking in Delaware. Allowing KT4 to
proceed elsewhere, but only if any of Palantir’s officers, directors, or agents who are
named as defendants do not consent to personal jurisdiction in Delaware, is a
reasonable solution to this problem.
Given the nature of KT4’s potential claims, KT4 might plausibly need to join
some of Palantir’s officers, directors, or agents as defendants in a lawsuit arising out
of the inspection information to accomplish some of the purposes that the Court of
Chancery found proper. In particular, two of Palantir’s cofounders—Karp (who is
also the CEO) and Peter Thiel—stand out as potential defendants. Karp has been a
central figure in this dispute, both in his capacity Palantir’s CEO and as a major
47
Palantir stockholder who was a signatory to the Investors’ Rights Agreement and the
First Refusal Agreement.121 As for Thiel, his role in the dispute is less clear, but he
did sign the Investors’ Rights Agreement and the First Refusal Agreement, including
the September 2016 Amendments, both on his own behalf and on behalf of numerous
entities.122 This leaves open the possibility that Thiel may have also played a
substantial role in the events at issue, including the September 2016 Amendments
and any breach of the Investors’ Rights Agreement or First Refusal Agreement. The
potential that these defendants would not be subject to personal jurisdiction in
Delaware, even if remote, reasonably supports KT4’s request for a safety valve. And
if Delaware courts will be able to assert personal jurisdiction over the defendants,
then granting KT4’s requested Personal Jurisdiction Exception cannot prejudice
Palantir.
Given the reality that the key contracts at issue are all governed by California
law and that Palantir itself had sued in California, KT4 was, in our view, generous
121
See App. to Opening Br. at A-1215, A-1224, A-1273 (Signature Pages to Amended and
Restated First Refusal and Co-Sale Agreement for Palantir Technologies Inc.); id. at A-1309, A-
1356 (Signature Pages to the Amended and Restated Investors’ Rights Agreement for Palantir
Technologies Inc.); id. at A-1589 (Signature Page to the Amendment to the Amended and Restated
Investors’ Rights Agreement of Palantir Technologies Inc.); id. at A-1606 (Signature Page to the
Amendment to the Amended and Restated Investors’ Rights Agreement of Palantir Technologies
Inc.); id. at A-2284 (Stockholder List) (listing Karp as owning about 40 million shares).
122
Id. at A-1218–23 (Signature Pages to Amended and Restated First Refusal and Co-Sale
Agreement for Palantir Technologies Inc.); id. at A-1312–17 (Signature Pages to the Amended
and Restated Investors’ Rights Agreement for Palantir Technologies Inc.); id. at A-1591–96
(Signature Pages to the Amendment to the Amended and Restated Investors’ Rights Agreement of
Palantir Technologies Inc.); id. at A-1608–13 (Signature Pages to the Amendment to the Amended
and Restated Investors’ Rights Agreement of Palantir Technologies Inc.).
48
in conceding as much as it did. We cannot discern a reasonable basis for denying
KT4’s modest request for a safety valve in cases where potential defendants would
not consent to personal jurisdiction in Delaware.
For all these reasons, we hold that the Court of Chancery abused its discretion
by imposing the Jurisdictional Use Restriction without allowing KT4 to bring suit in
the Delaware Superior Court in the first instance and without KT4’s proposed
Personal Jurisdiction Exception. We therefore reverse to the extent that the Final
Order and Judgment denies KT4 the right to bring an action in the Superior Court in
the first instance and omits the Personal Jurisdiction Exception.
III. Conclusion
The Court of Chancery abused its discretion both by excluding emails related
to the September 2016 Amendments from the scope of relief and by imposing the
Jurisdictional Use Restriction without KT4’s requested modifications. As to the
other two issues raised by KT4, we find no error. We therefore affirm in part and
reverse in part the Court of Chancery’s judgment and remand for further proceedings
consistent with this opinion.
49