United States District Court, D. Massachusetts
MEMORANDUM AND ORDER ON DEFENDANT'S MOTION TO
DENNIS SAYLOR, UNITED STATES DISTRICT JUDGE.
an action for fraud. Plaintiff Andre Crawford-Brunt alleges
that he purchased 2% of the outstanding shares of Kensho
Technologies, calculated on a fully diluted basis, from
defendant Peter Kruskall and non-party Daniel Nadler, the two
founders of Kensho. He alleges that he paid each of them $1
million for 220, 000 shares of the company, but that he was
not told about outstanding convertible promissory notes that
could significantly dilute his ownership share. Taking those
notes into account, Crawford-Brunt alleges that he was owed
86, 739 additional shares from each co-founder. Nadler has
since transferred that number of shares to Crawford-Brunt,
but Kruskall has not. Crawford-Brunt filed this action
against Kruskall seeking damages and equitable relief.
filed a motion to dismiss the complaint for failure to state
a claim, on the ground that Kruskall himself did not
participate in the negotiations with Crawford-Brunt and
therefore could not have made a fraudulent misrepresentation.
Because the complaint adequately alleges that Nadler was
acting as an agent for Kruskall and that Kruskall knew of the
misrepresentation and remained silent, the motion to dismiss
will be denied.
following facts are set forth as alleged in the complaint.
Nadler and Peter Kruskall are the two co-founders of Kensho
Technologies Inc. (Compl. ¶ 7). Nadler is the CEO of
Kensho. (Id. ¶ 8). At the time Crawford-Brunt
invested in the company, Kruskall was the Treasurer of
Kensho. (Id. ¶ 9). Although he remains a
shareholder, he is no longer an officer, director, or
employee of the company. (Id. ¶ 10).
first contacted Nadler on July 14, 2014, about the
possibility of investing in Kensho. (Id. ¶ 11).
In a telephone conversation, Nadler and Crawford-Brunt
discussed Kensho's business extensively and the possible
terms of Crawford-Brunt's investment. (Id.
¶¶ 11-12). Crawford-Brunt expressed interest in
buying 2% of the outstanding shares of Kensho, calculated on
a fully diluted basis. (Id. ¶ 12). According to
the complaint, Nadler mentioned a similar investment that an
executive of LinkedIn had made, and represented that he and
Kruskall could offer those terms to Crawford-Brunt.
(Id.). Nadler stated, and Crawford-Brunt believed,
that Nadler was authorized to negotiate on behalf of
Kruskall. (Id. ¶¶ 11-12, 14-15). In an
email to Nadler later that day, Crawford-Brunt wrote:
“Please advise re the stake when you can. I would be
happy to buy up a few million dollars.” (Id.
17, 2014, Nadler responded:
Andre, please see attached the doc for the transaction with
the LinkedIn executive. He negotiated a 33% discount for the
common stock relative to Goldman Sachs' 150M valuation
for their investment in Kensho. We will pin down the exact
amount we can carve out for you over the next few days, but
what you suggest, a couple of million, is likely in range.
(Id. ¶ 14). Crawford-Brunt alleges that, by
“we, ” Nadler was referring to himself and
(Id. ¶ 15). A 33% discount from a $150 million
valuation is a $100 million valuation. (Id. ¶
16). That e-mail attached a draft common-stock-purchase
agreement, based on the agreement between the LinkedIn
executive and sellers Nadler and Kruskall. (Id.). It
left the amount of shares and the per-share price blank and
stated: “[NTD: Amounts to be $ worth
of shares for each Seller at $100M
valuation.]” (Id.) Crawford-Brunt
signed that agreement on July 25, 2014, and returned it to
Nadler. (Id. ¶ 16, Ex. 2).
September 11, 2014, Nadler told Crawford-Brunt that his and
Kruskall's attorney would handle the closing of the
transaction. (Id. ¶ 17). On September 12, that
attorney sent Crawford-Brunt an e-mail that included a
revised draft of the stock-purchase agreement, a redline of
the agreement showing the changes from the previous draft,
and a spreadsheet showing the share and price calculation.
(Id. ¶¶ 17-18) The attorney described the
changes as “non-substantive, ” apart from riders
obligating Crawford-Brunt to abide by the restricted-stock
agreements previously signed by Kruskall and Nadler.
(Id. ¶ 17).
redlined agreement struck “[NTD: Amounts to be
$ worth of shares foreach Seller at $100M
valuation]” and added a statement in that
Nadler and Kruskall would each sell 220, 000 shares of Kensho
stock to Crawford-Brunt at $4.5455 per share.
(Id.¶ 18, Ex. 2). The attached spreadsheet
showed that Nadler and Kruskall each held 9, 500, 000 shares,
the LinkedIn executive held 296, 876 shares, employees held
2, 162, 085 shares, and that 541, 039 shares were set aside
as allocated or unallocated options, for a total of 22, 000,
000 shares. (Id. Ex. B). It stated that the
“Valuation” is “$100, 000, 000”; the
“Price Per ...