A Palantir Technologies Inc. shareholder sued Peter Thiel and its other two founders in Delaware Chancery Court on Thursday, claiming they made themselves “corporate emperor for life” through charter provisions that make investor votes “magically appear and disappear” on demand.
“The founders decided to completely untether voting power from equity ownership” by providing that their shares always control 49.99% of the vote, no matter how much of Palantir they own, the complaint says. “This power grab stretches the flexible bands that keep Delaware law in balance beyond their breaking point.”
In addition to Thiel, the lawsuit targets Alexander Karp, Stephen Cohen, and Palantir itself. It challenges the legality of charter clauses allegedly providing that the relative voting power of each share be “continuously adjusted post-hoc to accommodate the grant of fixed voting power” to the three founders.
Palantir didn’t immediately respond to a request for comment Thursday.
Under Delaware corporate law, shares—not individuals—"have defined voting power,” according to the proposed class action. The “unprecedented construct” of the “class F” shares held by the founders “turns this fundamental structural premise of Delaware law on its head,” the lawsuit says.
The “variable voting rights” provisions also allegedly lead to “practical problems": Because the power of class F stock “is never cognizable in advance,” the power of class A and class B shares is “always in flux.” That “wreaks havoc” on the company’s capital structure, according to the complaint.
“Class F stock does not have one vote per share, 10 votes per share, or even 1 million votes per share,” the lawsuit says.
Instead, the power of class F stock is allegedly reverse-engineered from the number of votes cast on any given proposal, “as if by magic,” to represent exactly 49.99% of the total.
Under the charter, “the class F stock will continue to impart this magic voting power in every election from now until the date that the last of the three founders dies,” which will likely “be a generation” from now, considering that Cohen is just 37, according to the complaint.
“The class F stock is not ‘stock’ at all,” the lawsuit says. “It is instead the allocation to the three founders, by fiat, of the right to control the company for the rest of their lives. The fact that the corporate tacticians at work here called this ‘stock’ rather than a ‘floating supervoting proxy’ or a ‘magic bean’ is of no moment.”
Cause of Action: Sections 212, 151, and 231 of the Delaware General Corporation Law.
Relief: Invalidation of the class F stock and the charter provisions authorizing it; costs and fees.
Potential Class Size: The holders of 1.75 billion class A shares of Palantir stock and 69 million class B shares.
Attorneys: The plaintiff is represented by Bernstein Litowitz Berger & Grossmann LLP, Saxena White PA, and Friedman Oster & Tejtel PLLC.
The case is Hirsch v. Palantir Techs. Inc., Del. Ch., No. 2021-0275, complaint filed 4/1/21.