Crawford-Brunt v. Kruskall

CourtDistrict Court, D. Massachusetts
DecidedJune 12, 2019
Docket1:17-cv-11432
StatusUnknown

This text of Crawford-Brunt v. Kruskall (Crawford-Brunt v. Kruskall) is published on Counsel Stack Legal Research, covering District Court, D. Massachusetts primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Crawford-Brunt v. Kruskall, (D. Mass. 2019).

Opinion

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

_____________________________________ ) ANDRE CRAWFORD-BRUNT, ) ) Plaintiff, ) ) Civil Action No. v. ) 17-11432-FDS ) PETER KRUSKALL, ) ) Defendant. ) _____________________________________)

MEMORANDUM AND ORDER ON DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

SAYLOR, J. This dispute involves a claim of fraud arising out of a sale of shares in Kensho Technologies, Inc., an analytics and machine learning company. Jurisdiction is based on diversity of citizenship. Daniel Nadler and defendant Peter Kruskall founded Kensho in 2013. In mid-2014, plaintiff Andre Crawford-Brunt, who was then the global head of equity trading at Deutsche Bank, agreed to purchase 2% of Kensho's “fully diluted” shares for $2 million. Crawford-Brunt asked Nadler what the total number of “fully diluted” shares was, and Nadler replied by e-mail that there were approximately 21.5 million shares outstanding “as of now.” Crawford-Brunt then acquired 220,000 shares apiece from Nadler and Kruskall. Several months later, Crawford-Brunt learned that Kensho had previously issued to other investors convertible debt and other instruments that, if converted into stock, would have significantly diluted his stake in the company. He brought suit against Kruskall, alleging fraud and seeking reformation of the purchase agreement based on unilateral mistake. Kruskall has moved for summary judgment. For the following reasons, the motion will be denied. I. Background

A. Factual Background The following facts are as set forth in the record and are presented in the light most favorable to Crawford-Brunt, the non-moving party. Kensho Technologies, Inc., is a data analytics and machine intelligence company that is incorporated in Delaware and has its principal place of business in Massachusetts. (Am. Compl. ¶ 7). Daniel Nadler is the CEO, and Peter Kruskall was previously the Treasurer and a member of the Board of Directors. (Id. ¶¶ 8-9). Both Nadler and Kruskall are founders of the company. Although Kruskall remains a shareholder, he is no longer an officer, director, or employee.1 In 2014, Andre Crawford-Brunt was the global head of equity trading at Deutsche Bank, a major investment bank. (Crawford-Brunt (“ACB”) Dep. at 15:20-22). He is a resident of the

United Kingdom. In mid-2014, Kensho made a presentation to Deutsche Bank executives at its U.S. headquarters in New York. (Id. at 4:20-24). Although Crawford-Brunt did not attend the meeting, he was alerted to the company by another high-ranking bank employee, Tom Patrick. (Id. at 5:5-7). Crawford-Brunt reached out to Kensho and asked the company to return to New York to make a presentation to him. (Id. at 5:8-13). The presentation occurred sometime in late June 2014, and was performed by Adam Broun, who was then Kensho’s Chief Technology Officer. (Id. at 5:16-20; 7:7-9). Deutsche Bank ultimately decided not to invest in Kensho. (Id.

1 Kruskall is a citizen of Massachusetts. at 7:23-8:2). However, Crawford-Brunt became interested in personally investing in the company. (Id. at 11:5-7). Crawford-Brunt first met Nadler in early July 2014. (Id. at 18:10-17). Around that time, they also exchanged e-mails and text messages. (Id. at 19:3-16). Crawford-Brunt did not ask

Nadler about Kensho or how the company’s product worked, nor did he conduct any independent research. (Id. at 21:10-12; 21:17-21). On July 14, 2014, Crawford-Brunt e-mailed Nadler the following: [M]any thanks for your time today. I have not been this excited about an opportunity in a long time! I would welcome being a shareholder or assisting in any way I can.

Please advise re the stake when you can. I would be happy to buy up to a few million dollars [of stock].

(ACB Dep. Ex. 1). Nadler answered as follows on July 17, 2014: Andre, please see attached the doc for [a similar] transaction with [a] LinkedIn executive. He negotiated a 33% discount for the common stock relative to Goldman Sachs’ [$150 million] 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.). According to Crawford-Brunt, he would receive a 33% discount for any prospective investment “because [he] was buying common shares from the founders, which . . . do not have the same level of protection associated with preferred shares,” which in turn “are paid dividends before common shares.” (ACB Decl. ¶ 9). Around that time, Nadler mentioned to Crawford- Brunt that he was negotiating with Goldman Sachs on a possible investment at a $150 million valuation for the company. (ACB Dep. at 36:15-21). However, Crawford-Brunt did not ask whether Goldman Sachs had closed on an investment with Kensho. (Id. at 36:22-37:14). Crawford-Brunt testified that sometime over the next few days, he asked Nadler “what the fully diluted number of shares in issue was.” (Id. at 28:5-9). In an e-mail sent at 8:12 p.m. on July 23, 2014, Nadler responded, “[w]ill have my legal guys confirm exact number [of shares] because its always complicated with the combination of founder stock, [restricted stock awards],

[incentive stock options], option pools, etc., but its between 21M and 22M shares.” (ACB Dep. Ex. 2). Later that evening, at 9:17 p.m., Nadler e-mailed Crawford-Brunt that the number of shares outstanding “as of now” was 21,458,961. (Id.). Crawford-Brunt testified that he and Nadler never discussed a definition for the term “fully diluted.” (ACB Dep. at 29:12-14). However, he further testified that he defined the term as “the total number of shares based on . . . all instruments, outstanding instruments being diluted—being exercised at the time. So the maximum number of shares at issue.” (Id. at 30:8- 11).2 He defined “instruments,” in turn, to refer to financial instruments that have “equity or equity-like characteristics,” including “options, warrants, [and] share option pool[s].” (Id. at 31:7-12). He further testified that an investor “would want to understand what [the] fully diluted

share count would be so that [he] could calculate the right share price from it.” (Id. at 30:11-15). Crawford-Brunt testified that after July 23, 2014, he and Nadler orally agreed that he would “mak[e] an investment at a 33 percent discount to Goldman Sachs on a fully diluted share count of just under around 21 and a half million shares.” (Id. at 39:23-40:2). On July 25, 2014, Crawford-Brunt’s assistant, Mary Wynman, e-mailed Nadler a copy of a Common Stock Purchase Agreement signed by Crawford-Brunt. (ACB Dep. Ex. 3). The number of shares to be sold and the price per share were not stated in the draft document. (Id.). Over the next few

2 The parties have provided competing expert reports on the meaning of “fully diluted” shares. (See Cohen Report; Duarte-Silva Report). months, Crawford-Brunt did not do any further research into the company. (ACB Dep. at 51:4- 15). On September 11, 2014, Nadler advised Crawford-Brunt that Peter Osborn, an attorney at the firm WilmerHale, would facilitate the closing. (ACB Dep. Ex. 4). Osborn e-mailed

Crawford-Brunt on September 12, 2014, stating that he had revised the Common Stock Purchase Agreement “to provide for a joinder to the restricted stock agreements that [Nadler] and [Kruskall] are bound by with the company.” (ACB Dep. Ex. 5). The revisions specified that Nadler and Kruskall would each sell 220,000 shares at a price of $4.5455 per share to Crawford- Brunt. (Id.). Osborn “also attached a spreadsheet showing the [price per] share and price calculation for [Crawford-Brunt’s] reference.” (Id.). The calculations in the spreadsheet were as follows: Shareholder Number of Shares

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Crawford-Brunt v. Kruskall, Counsel Stack Legal Research, https://law.counselstack.com/opinion/crawford-brunt-v-kruskall-mad-2019.