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Crawford-Brunt v. Kruskall

United States District Court, D. Massachusetts

January 11, 2018




         This is 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.

         Kruskall 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.

         I. Background

         A. Factual Background

         The following facts are set forth as alleged in the complaint.

         Daniel 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).

         Crawford-Brunt 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. ¶ 13).

         On July 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 Kruskall.

(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).

         On 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).

         The 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 ...

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