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KT4 Partners LLC v. Palantir Technologies, Inc.

Supreme Court of Delaware
203 A.3d 738 (2019)
ELI5:

Rule of Law:

Under Delaware General Corporation Law § 220, if a corporation conducts formal business through informal electronic communications like email and fails to maintain traditional corporate records, it must produce those emails to a stockholder with a proper investigative purpose because they are necessary records. Courts may not impose jurisdictional use restrictions on information obtained through a § 220 inspection without a strong, case-specific justification, especially when the underlying dispute involves another state's law and parties.


Facts:

  • KT4 Partners LLC was a longtime investor in Palantir Technologies Inc. and a party to an Investors' Rights Agreement which granted certain information and inspection rights to 'Major Investors,' including KT4.
  • After a falling out between KT4's principal, Marc Abramowitz, and Palantir's CEO, Alex Karp, the relationship between the parties deteriorated.
  • On August 16, 2016, KT4 sent an information request to Palantir under the Investors' Rights Agreement.
  • Palantir responded that it was reviewing the request but did not provide the information.
  • Instead, on September 1, 2016, Palantir's board executed amendments to the Investors' Rights Agreement which raised the share ownership threshold required to be a 'Major Investor.'
  • These amendments effectively and retroactively stripped KT4 of its contractual information rights.
  • The same day the amendments were executed, Palantir sued KT4 in California for alleged theft of trade secrets.
  • The key stockholder agreements at issue contained California choice-of-law clauses.

Procedural Posture:

  • KT4 Partners LLC sent a written demand to Palantir Technologies Inc. under 8 Del. C. § 220 to inspect its books and records.
  • Palantir rejected the demand.
  • KT4 filed a § 220 action in the Delaware Court of Chancery (trial court) to compel Palantir to provide access.
  • After a one-day trial, the Court of Chancery issued a post-trial opinion holding that KT4 had shown a proper purpose for investigating three areas of suspected wrongdoing.
  • The court ordered Palantir to produce certain records but, in its final order, denied KT4's request for emails.
  • The Court of Chancery also imposed a jurisdictional use restriction, requiring any lawsuit arising from the inspection to be brought exclusively in the Court of Chancery.
  • KT4 filed a motion for limited reargument on the email exclusion, which the court denied.
  • KT4 (appellant) appealed the final order to the Delaware Supreme Court (highest court), with Palantir as appellee.

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Issue:

Under Delaware General Corporation Law § 220, must a corporation produce emails that are necessary for a stockholder's proper investigative purpose when the corporation conducts business informally and more formal records of its actions do not exist?


Opinions:

Majority - Chief Justice Strine

Yes, a corporation must produce emails necessary for a stockholder's proper investigative purpose when it conducts business informally and formal records do not exist. A company cannot use its own choice of an informal communication medium to shield substantive information from stockholders entitled to it under § 220. KT4 met its burden by presenting evidence that Palantir disregarded corporate formalities (e.g., failing to hold annual meetings) and had acted through email regarding the very amendments KT4 sought to investigate. Once a petitioner makes such a showing, the corporation cannot refuse to produce emails if they are the only responsive documents that exist. Palantir failed to present evidence that more traditional records like board minutes existed, and later conceded they did not, making the emails necessary for KT4's purpose. The Court also held that the trial court abused its discretion by imposing a jurisdictional use restriction. Such restrictions are not routine and must be justified by case-specific factors. Here, the factors weighed against the restriction: Palantir had no forum-selection bylaw, Palantir itself had sued KT4 in California, and the contracts at issue were governed by California law. KT4’s requested modifications to the restriction were modest and reasonable and should have been granted.



Analysis:

This decision significantly clarifies the scope of 'books and records' in the digital age, establishing that emails are not just discoverable but essential for § 220 purposes when a company eschews formal record-keeping. It prevents corporations from weaponizing their own informality to thwart shareholder oversight, forcing them to produce the records they actually use, regardless of format. The opinion also reinforces the holding in Treppel, clarifying that jurisdictional use restrictions are an exception, not the rule, and must be supported by strong, case-specific factors that promote efficiency, rather than being used tactically to disadvantage a shareholder.

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