Explore a recent legal development as a Delaware court permits a shareholder lawsuit against a Palo Alto-based private company involved in big data analytics. Delve into the details of the failed sale of common and preferred stock to a Chinese private equity firm, uncovering contractual breaches and allegations of misuse of confidential information.
M&A Stories
September 7, 2018
In a recent legal development, a Delaware court has permitted a shareholder lawsuit against a Palo Alto-based private company specializing in big data analytics. The case involves the failed sale of common and preferred stock to a Chinese private equity firm, revealing a breach of contractual agreements.
Background:
The company and shareholders had agreements in place requiring notice of any potential transfer of preferred stock. Shareholders were restricted from selling without notifying the company, providing detailed statements, and, if requested, legal opinions ensuring compliance with securities laws.
The Incident:
Negotiations for the sale of company shares to a Chinese private equity fund began in October 2015. By December 2015, an agreement was reached with a special purpose vehicle created for the acquisition. Shareholders informed the company of the proposed transaction, supplying confidential information as per the agreements.
Allegations:
Shareholders claim the company’s officers used this confidential information to offer the private equity fund shares directly from the company. The company provided due diligence opportunities and additional shareholder rights, causing the private equity fund to abandon the deal with shareholders.
Legal Action:
On December 14, 2017, shareholders sued the company for tortious interference. The company filed a motion to dismiss on February 16, 2018, arguing insufficient legal claims. However, the Delaware trial court rejected the motion, stating the alleged facts supported the claim that the company interfered with the shareholders’ sale.
Court Ruling:
The court found that under the alleged facts, the company breached its duty not to misuse confidential information, causing harm to the shareholders’ transaction. The breach of good faith and fair dealing in the preferred stock purchase agreements was also acknowledged.
Conclusion:
While competition in acquiring companies is normal, interfering unlawfully in a deal crosses legal boundaries. This case highlights the importance of respecting contractual arrangements and refraining from the misuse of confidential information.
Case Reference:
KT4 Partners LLC v. Palantir Technologies, Inc., C.A. No. N17C-12-212 EMD CCLD, Superior Court of Delaware (Decided: August 22, 2018).
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