Ripple Counterclaim

FILED: NEW YORK COUNTY CLERK 01/05/2018 03:34 PM INDEX NO.

655781/2017
NYSCEF DOC. NO. 67 RECEIVED NYSCEF: 01/05/2018

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK (COMMERCIAL DIVISION)
R3 HOLDCO LLC,
Plaintiff,
-against-
RIPPLE LABS INC. and XRP II, LLC, Index No. 655781/2017
Defendants. Part 3
(Bransten, J.)
ANSWER, AFFIRMATIVE
DEFENSES AND COUNTERCLAIM
OF DEFENDANTS
(" Ripple" II"

Defendants Ripple Labs Inc. ("Ripple") and XRP II, LLC ("XRP and, collectively
"Defendants"
with Ripple, "Defendants"), by and through their undersigned attorneys, Quinn Emanuel
Urquhart & Sullivan, LLP, for its Answer to the Complaint of Plaintiff R3 HoldCo LLC ("R3
HoldCo") state, upon knowledge as to themselves and their own acts, and otherwise upon
information and belief, as below. Except as herein specifically admitted, each and every
allegation in the complaint is expressly denied.
INTRODUCTION
1. Paragraph 1 of the complaint states a legal conclusion to which no response is
required. To the extent a response is required, Defendants aver that the terms of the Option
Contract speak for themselves, and refer to the Option Contract for an accurate and complete
statement of its terms. Defendants admit that when the Option Contract was executed in
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FILED: NEW YORK COUNTY CLERK 01/05/2018 03:34 PM INDEX NO. 655781/2017
R3 HoldCo LLC v. Ripple Labs Inc. et al. Index No. 655781/2017

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September 2016, XRP generally traded at a price less than $0.0085 per unit. Defendants deny
the remaining allegations contained in paragraph 1 of the complaint.
2. Defendants admit that over the last year, the value of XRP generally has risen.
Defendants deny the remaining allegations contained in paragraph 2 of the complaint.
required. To the extent a response is required, Defendants admit that on June 12, 2017, Brad
Garlinghouse, the CEO of Ripple and Manager of XRP II, informed R3 that Ripple was lawfully
terminating the Technology Provider Agreement and XRP II was lawfully terminating the
"Agreements"
Option Contract (together, the "Agreements"). Defendants deny the remaining allegations
contained in paragraph 3 of the complaint.
PARTIES, JURISDICTION, AND VENUE
4. Defendants have insufficient knowledge and information to form a belief as to the
allegations contained in paragraph 4 of the complaint, and so deny the same.
5. Ripple admits that Ripple is a corporation organized and existing under the laws
of the State of Delaware and is registered to transact business in New York as a foreign business
corporation. Ripple further admits that it provides global financial software settlement solutions
that enable banks to transact directly, instantly and with certainty of settlement. Ripple further
admits that is has an office in New York, NY. Ripple denies the remaining allegations contained
in paragraph 5 of the complaint.
6. XRP II admits that it is a limited liability company organized and existing under
the laws of the State of New York, and that it is a wholly owned subsidiary of Ripple. Ripple
admits that its website states that XRP II is "Ripple's registered and licensed money service
(MSB)."
business XRP II admits that it is licensed to engage in Virtual Currency Business
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Activity by the New York State Department of Financial Services, as that term is defined by the
State of New York. Defendants deny the remaining allegations contained in paragraph 6 of the
complaint.
required.
required.
required. To the extent a response is required, Defendants have insufficient knowledge and
information to form a belief as to the allegations contained in paragraph 9 of the complaint, and
so deny the same.
FACTUALBACKGROUND1
FACTUAL
10. Defendants deny the allegations contained in paragraph 10 of the complaint.
11. Defendants admit that on or about September 26, 2016, XRP II and R3 HoldCo
executed the Option Contract. Defendants further admit that a true and correct copy of the
Option Contract was attached to the complaint as Exhibit A. Defendants aver that the terms of
the Option Contract speak for themselves, refer to the Option Contract for an accurate and
complete statement of its terms, and otherwise deny the remaining allegations contained in
paragraph 11.
1
Defendants do not consider the headings in the complaint to be allegations to which a
response is necessary; to the extent a response is necessary, Defendants deny all headings in the
complaint.
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12. Defendants admit that David Rutter and Chris Larsen executed the Option
Contract. Defendants deny the remaining allegations contained in paragraph 12 of the
complaint.
13. Defendants aver that the terms of the Option Contract speak for themselves, refer
to the Option Contract for an accurate and complete statement of its terms, and otherwise deny
the remaining allegations contained in paragraph 13.
Contract speak for themselves, refer to the Option Contract for an accurate and complete
statement of its terms, and otherwise deny the remaining allegations contained in paragraph 15.
18. Defendants admit that when the Option Contract was executed in September
2016, XRP generally traded at a price less than $0.0085 per unit. Defendants deny the remaining
allegations contained in paragraph 18 of the complaint.
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19. Defendants admit the allegations contained in paragraph 19 of the complaint.
20. Defendants admit that the market value of XRP generally has increased over the
last year. Defendants deny the remaining allegations contained in paragraph 20 of the complaint.
21. Defendants deny the allegations contained in paragraph 21 of the complaint.
required. To the extent a response is required, Defendants admit that Brad Garlinghouse
informed David Rutter on June 12, 2017 that Defendants were lawfully terminating the
Agreements. Defendants deny the remaining allegations contained in paragraph 22 of the
complaint.
required. To the extent a response is required, Defendants admit that they have not declared
bankruptcy, are not insolvent, and have not reorganized since the parties executed the Option
Contract. Defendants deny the remaining allegations contained in paragraph 23 of the
complaint.
24. Defendants have insufficient knowledge and information to form a belief as to the
allegations contained in paragraph 24 of the complaint, and so deny these allegations.
COUNT 1
25. Defendants repeat and reiterate each of their foregoing responses as if fully set
forth therein.
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required. To the extent a response is required, Defendants admit that Brad Garlinghouse
informed David Rutter on June 12, 2017 that Defendants were lawfully terminating the
Agreements. Defendants deny the remaining allegations contained in paragraph 29 of the
complaint.
required. To the extent a response is required, Defendants deny the allegations contained in
paragraph 30 of the complaint.
required.
COUNT 2
32. Defendants repeat and reiterate each of their foregoing responses as if fully set
forth therein.
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34. Defendants admit the allegations contained in paragraph 34 of the complaint.
required. To the extent a response is required, Defendants admit that on June 12, 2017, Brad
Garlinghouse informed David Rutter that Defendants were lawfully terminating the Agreements.
Defendants deny the remaining allegations contained in paragraph 35 of the complaint.
AFFIRMATIVE DEFENSES
Defendants have insufficient knowledge or information upon which to form a belief as to
whether there may be additional affirmative defenses available, and therefore Defendants reserve
the right to assert such additional defenses based upon subsequently acquired knowledge or
information that becomes available through discovery or otherwise. Without assuming the
burden of proof on any matters where that burden rests on R3 HoldCo as plaintiff, Defendants
assert the following defenses with respect to the complaint:
FIRST AFFIRMATIVE DEFENSE
(Failure to State a Claim)
The complaint, and each cause of action purportedly alleged therein, fails to state any
claim for which relief may be granted.
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SECOND AFFIRMATIVE DEFENSE
(Plaintiff's Breach)
The complaint, and each cause of action purportedly alleged therein, is barred by virtue
of the fact that R3 HoldCo LLC and R3 LLC materially breached the Agreements.
THIRD AFFIRMATIVE DEFENSE
(Estoppel)
The complaint, and each cause of action purportedly alleged therein, is barred by the
doctrine of estoppel.
FOURTH AFFIRMATIVE DEFENSE
(No Damage)
The complaint, and each cause of action purportedly alleged therein, is barred or
estopped, in whole or in part, by virtue of the fact that R3 HoldCo has suffered no injury or
damages from the matters alleged.
FIFTH AFFIRMATIVE DEFENSE
(Unclean Hands)
The complaint, and each cause of action purportedly alleged therein, is barred by the
doctrine of unclean hands and by the inequitable conduct of R3 HoldCo as well as R3 LLC.
SIXTH AFFIRMATIVE DEFENSE
(Bad Faith and Improper Purpose)
The complaint, and each cause of action purportedly alleged therein, is barred, in whole
or in part, because R3 HoldCo is prosecuting this litigation in bad faith and for an improper
purpose, entitling Defendants to an award of reasonable expenses and attorney's fees.
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SEVENTH AFFIRMATIVE DEFENSE
(Waiver)
or in part, because R3 HoldCo has waived any right it may have to institute an action for the
alleged wrongdoing of which it complains.
EIGHTH AFFIRMATIVE DEFENSE
(Unjust Enrichment)
or in part, because R3 HoldCo would be unjustly enriched if it was allowed to recover damages
from Defendants.
NINTH AFFIRMATIVE DEFENSE
(Failure to Mitigate)
or in part, by reason of R3 HoldCo's failure to mitigate its purported damages.
TENTH AFFIRMATIVE DEFENSE
(Fraud in the Inducement)
or in part, by reason of fraud in the inducement, as R3 HoldCo, with R3 LLC, made fraudulent
statements with knowledge of their falsity to persuade Defendants to enter into the Agreements,
upon which Defendants reasonably relied in entering into such contracts, into which Defendants
would not have entered if they had known about the falsity of the fraudulent statements.
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ELEVENTH AFFIRMATIVE DEFENSE
(Other Pending Action)
of the fact that there is another pending action involving the same parties and claims in
California.
TWELFTH AFFIRMATIVE DEFENSE
(Statute of Frauds)
or in part, by the Statute of Frauds.
THIRTEENTH AFFIRMATIVE DEFENSE
(Fraudulent Concealment)
or in part, by reason of fraudulent concealment, as R3 HoldCo, with R3 LLC, concealed material
information with knowledge of their falsity to persuade Defendants to enter into the Agreements,
upon which Defendants reasonably relied in entering into such contracts, into which Defendants
would not have entered if they had known about the falsity of the fraudulent statements.
FOURTEENTH AFFIRMATIVE DEFENSE
(Forum non conveniens)
or in part, by forum non conveniens.
FIFTEENTH AFFIRMATIVE DEFENSE
(Limitation of Liability and Damages)
or in part, by the limitations on liability and damages set forth in the Agreements.
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SIXTEENTH AFFIRMATIVE DEFENSE
(Want of Consideration)
or in part, by reason of the want of consideration to support the Option Contract.
SEVENTEENTH AFFIRMATIVE DEFENSE
(Failure of Consideration)
or in part, by reason of the failure of consideration to support the Option Contract.
EIGHTEENTH AFFIRMATIVE DEFENSE
(Repudiation)
of the fact that R3 HoldCo and R3 LLC repudiated the Agreements.
NINETEENTH AFFIRMATIVE DEFENSE
(Abandonment/Abrogation)
of the fact that R3 HoldCo and R3 LLC abandoned and/or abrogated the Agreements.
11
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COUNTERCLAIMS AGAINST R3 HOLDCO AND R3 LLC
Defendants/Counterclaim Plaintiffs Ripple Labs Inc. and XRP II, LLC (collectively
Plaintiffs"
"Counterclaim Plaintiffs"), by and through their undersigned attorneys, Quinn Emanuel Urquhart
& Sullivan LLP, for their Counterclaims against Plaintiff/Counterclaim Defendant, R3 HoldCo
and Counterclaim Defendant R3 LLC (collectively with R3 HoldCo, "R3"), hereby state as
follows:
NATURE OF THE ACTION
1. This is a case about R3's misrepresentations, omissions, half-truths, and failure to
live up to its promises. By hiding and shading the truth, R3's key executives induced Ripple and
XRP II to do business with R3. As a result, Ripple shared with R3 sensitive, proprietary,
confidential, and trade secret information about Ripple's cross-border payment solutions under a
non-disclosure agreement to which Ripple believed R3 would adhere. As part of the plan to
operationalize a commercial partnership, a plan agreed to by the key executives of R3 and
Ripple, XRP II granted an option to R3 for five billion units of digital asset XRP. Ripple and
XRP II would not have done these things had R3's executives told them the truth. After so
inducing Ripple and XRP II, R3 breached separate and distinct promises it made to Ripple and
XRP II. R3 further publicly revealed, just over two months ago, that it had been building a
competitive cross-border payments product at the very time that R3 was extracting from Ripple
proprietary information, protected under a non-disclosure agreement, about its cross-border
payments product. This action seeks redress for these wrongs.
2. Ripple is a financial technology company that has developed state-of-the-art
software for financial transactions with a vision to connect banks, payment providers, digital
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asset exchanges and corporates to provide a frictionless experience to send money globally. This
concepts.2
state-of-the-art technology is built on distributed ledger concepts.
3. Ripple also holds XRP, a unique digital asset that solves the current friction
experienced with global payments. XRP is a valued cryptocurrency (other cryptocurrencies
include Bitcoin and Ethereum). XRP II is Ripple's wholly-owned subsidiary that manages
certain transactions involving XRP.
4. Ripple's success is driven in part by the adoption of its state-of-the art software by
international banks and financial institutions and the use of XRP by those financial institutions to
move value worldwide. Ripple has expended significant time and effort to expose these
financial institutions, including banks, central banks and regulators worldwide, to the technology
and the unique properties of XRP, to demonstrate how these technologies can facilitate seamless
international financial transactions in revolutionary ways.
5. In the fall of 2014, Ripple and R3 were introduced by mutual contacts and, at
R3's request, began meeting together to discuss shared interests and possible commercial
synergies. At that point in time, R3 represented itself to be a neutral laboratory for testing
blockchain and distributed ledger technologies (such as Ripple's) on behalf of banking clients
interested in adopting such technologies.
6. In the two years between the fall of 2014 and the fall of 2016, when the parties
signed their contracts, R3 met with Ripple on scores of occasions to discuss a commercial
partnership between R3 and Ripple. During these discussions, including discussions by phone
and email, R3 represented-specifically through David Rutter, the CEO of R3 LLC and
President of R3 HoldCo, and through co-founder Todd McDonald-that R3 could help Ripple
succeed in the cross-border payment and digital asset space by promoting Ripple's technology
2
Distributed ledger technology is a means of supporting a single ledger where
transactions are validated in a distributed fashion using cryptographic software. A transaction is
committed to a distributed ledger only when more than one validator determines that it is
accurate.
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and XRP to a large group of banks across the world to which R3 had unique access.
Specifically, R3 held itself out to Ripple as having access to a leading consortium of banks and
as having the time and interest to socialize, test and market distributed ledger technologies to
these banks. R3 represented that it had the resources and capability to promote Ripple's
technology and XRP to these banks and to make Ripple a market leader. R3 also made clear that
as part of a deal with Ripple it wanted an option to purchase XRP.
7. As early as November 2015, R3 was grabbing headlines for quickly growing its
us."
substantial bank consortium from 9 to 30 banks, stating that these big banks have "all called
In December of 2015, R3 represented that its consortium had grown to 42 banks. And in
February, R3's Mr. Rutter reached out to Ripple, representing that R3 could use these
community"
connections to help "build[] a broader around Ripple's technology and XRP. Later,
R3 continued to repeat representations to Ripple about the strength of its consortium, for
example stating in August 2016 that R3's consortium was "a growing group with so many
members."
8. R3's Rutter represented in emails to and conversations with Chris Larsen, the
CEO of Ripple during the 2014 through 2016 time period, that R3 would "use our financial
markets expertise and relationships to help drive adoption of Ripple in a manner that's [sic]
team."
impactful for you and your Mr. Rutter declared that the many powerful banks in its
consortium were part of R3's laboratory for testing technologies such as Ripple's and that R3's
community"
lab had the ability to "build[] a broader around Ripple's technology and the digital
asset XRP. Mr. Rutter later reiterated to Mr. Larsen that "we are really excited to work with you
guys . . . I would like to be very clear with the banks that . . . the end game IS
product."
commercialization of a Fully acknowledging that Ripple's goal was to become a
leader in cross-border payments and the digital asset space, Mr. Rutter promised Mr. Larsen that
R3's network and expertise would increase the usage and utility of XRP by showcasing its
unique value, just as R3 had done for Ethereum, another cryptocurrency on the market.
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9. As is the case with some potential commercial partnerships, Ripple had questions
about whether R3 had plans to compete with Ripple's cross-border payments product. But R3's
highest-level spokespeople-its CEO and President as well as its co-founder-repeatedly
assured Ripple that R3 had no such plans to compete with Ripple on cross-border payments
technology. For example, Mr. Rutter hosted Mr. Larsen for an October 19, 2015 dinner near Mr.
Rutter's large home in New York. At that dinner, Mr. Rutter told Mr. Larsen that R3 had no
interest in entering or plans to enter the cross-border payments market. Instead, Mr. Rutter stated
that R3 wanted to use its banking contacts to help sell Ripple's payment technology. Mr. Rutter
and R3 co-founder Todd McDonald reiterated that R3 had no plans or intention to compete with
parties'
Ripple in the cross-border payment services market throughout the run-up to the parties
Agreements in the fall of 2016. These confirmations from the top of R3's command chain gave
Ripple comfort that R3 was not actively developing its own cross-border payments product at the
same time R3 was courting Ripple.
10. Based on R3's representations, on August 16, 2016, Ripple and R3 executed a
Technology Provider Agreement (the "TPA") whereby the parties memorialized the scope of a
potential commercial partnership. As part of that agreement, and as additional consideration
based on R3's representations as to its own capabilities and competitive plans, XRP II also
"Option," "Agreements"
executed an Option Agreement shortly thereafter (the collectively the "Agreements")
with R3. The Option granted R3 the right to purchase up to five billion XRP at a certain price.
11. But unbeknownst to Ripple and XRP II, R3 was not well-positioned to provide
Ripple with any resources or help. Rather, R3 had misrepresented its resources and current
ability to perform solely to induce Ripple into executing the Agreements. For example, although
R3 represented to Ripple that it would have access to its large consortium of leading banks, R3
knew and had reason to know that several key banks that would be instrumental to Ripple's
success would soon be departing from its consortium. Similarly, although R3 represented to
Ripple that it would use its "financial markets expertise and relationships to help drive adoption
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Ripple,"
of R3 knew and had reason to know it would be too busy with, and focused on, its own
fundraising to help Ripple in any respect.
12. And while R3 represented that commercialization of Ripple's product was R3's
game,"
"end and that R3 had no plans or intentions to directly compete with Ripple on a cross-
game"
border payments product, these representations too were false. R3's "end apparently was
to unveil a product that directly competed with Ripple's cross-border payments technology. On
October 31, 2017, R3 announced the release of its own cross-border payment technology, and
disclosed to the press that R3 had started to develop the product at the beginning of 2016, at the
very time it had been courting and securing valuable information and rights from Ripple.
Because this information was not otherwise available, was contrary to what R3's leadership had
professed, and was expressly concealed from Ripple and XRP II, Ripple and XRP II did not
discover R3's secret plan.
13. Had R3 been truthful with Ripple and XRP II about these matters, Ripple and
XRP II never would have entered into the Agreements, or given R3 access to Ripple's sensitive,
confidential, proprietary, and trade secret information in the months leading up to and following
the signing of the Agreements.
14. Apart from R3's misstatements and omissions, R3 breached separate and distinct
promises it made to Ripple and XRP II under the Agreements. Under the TPA, and as
consideration for the Option, R3 promised to work in good faith to negotiate and execute a
commercial partnership with Ripple. But after securing the Option, R3 effectively disappeared
as a potential partner. Soon after signing the Agreements, Mr. Rutter wrote to Brad
Garlinghouse, then Ripple's Chief Operating Officer, "[1]ove to see you win the payments space
round[.]"
. . . BUT I am personally being crushed by a ridiculously complicated funding Mr.
Rutter admitted to Mr. Garlinghouse months later that he had "no idea what's going on with
XRP,"
and Mr. Rutter and other R3 personnel admitted that R3 had not lived up to its side of the
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bargain in the TPA. R3 personnel even disparaged the use of XRP to potential Ripple customers
in December 2016.
15. Given R3's fraudulent misrepresentations, concealment of material facts, and
half-truths, and its subsequent failure to perform its separate promises to Ripple and XRP II
under the Agreements, in June 2017, Ripple and XRP II lawfully terminated the Agreements.
Ripple and XRP II now bring these counterclaims to address the harm caused by R3's
misconduct.
PARTIES
16. Ripple is a Delaware corporation headquartered at 315 Montgomery Street in San
Francisco, California.
17. XRP II is a limited liability company organized and existing under the laws of the
state of New York and headquartered at 315 Montgomery Street in San Francisco, California.
XRP II is Ripple's wholly-owned subsidiary.
18. R3 LLC and R3 HoldCo are both limited liability companies organized and
existing under the laws of the State of Delaware. R3 LLC and R3 HoldCo LLC share a
corporate headquarters at 1370 Broadway, Suite 1050, New York, NY 10018. The R3 corporate
group also maintains offices in London and Singapore. On information and belief, David Rutter
is and always has been the Chief Executive Officer of R3 LLC as well as the President of R3
HoldCo.
19. Ripple and XRP II are unaware of the true names and capacities, whether
individual, corporate, associate, or otherwise, of Counterclaim Defendants Does 1 through 10,
inclusive, or any of them, and therefore sues these Counterclaim Defendants, and each of them,
by such fictitious names. Ripple and XRP II will amend this Counterclaim when the identities of
these Counterclaim Defendants are ascertained.
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FACTUAL ALLEGATIONS
A. The Ripple Technology and XRP Digital Asset
20. As technology continues to flatten the world, businesses increasingly engage in
transactions across international borders. Consumers and businesses expect on-

quick, seamless,
demand delivery of services and information.
21. Before the rise of the Internet, banks developed systems for facilitating payments
for international transactions. But these systems are cumbersome, inefficient, and can create
security concerns.
22. Ripple is a financial technology company that has supported the development of
Technology"
state-of-the-art technology to facilitate financial transactions (the "Ripple Technology"). The
Ripple Technology enables financial institutions to connect with one another directly to reliably
and efficiently communicate information about, and settle, cross-border payments. This
technology has never existed before. And it ensures the payment speed and certainty necessary
to service high volumes of all sizes and types of payments, while them cost-
making fast,
effective and transparent for banks and financial institutions.
23. Ripple works with banks and financial institutions to minimize unnecessary
transaction fees and to transform how to send money around the world - a necessary step to
compete in today's growing economy.
24. Ripple also supports the development of an open source technology distributed
ledger, the XRP Ledger, to which the digital asset XRP is native. Financial institutions that use
the Ripple Technology, which include products xCurrent and xVia, are not required to use XRP,
but can if they choose. In particular, they can use XRP to expand reach into new markets, lower
foreign exchange costs, and provide faster payments.
B. R3's Representations to Grow Ripple Into a Market Leader
25. Understanding that Ripple's success is driven in substantial part by having
international banks and financial institutions adopt the Ripple Technology and embrace XRP, in
October 2014, R3 reached out to Ripple to discuss the ways in which it could help make Ripple a
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market leader. From that point on, between October 2014 and August 2016, prior to the parties
signing either of the Agreements, R3 made many representations to Ripple as to R3's capacity to
provide Ripple with services and resources to ensure that Ripple would become that market
leader in the cross-border payment and digital asset space, as R3 had promised. These
representations occurred over the course of over a dozen in-person meetings, and many phone
calls and emails.
26. Many of R3's representations were made by Mr. Rutter, the CEO of R3 LLC and
the President of R3 HoldCo. Others at R3 additionally made representations, including Todd
McDonald and Clemens Wan. Mr. Rutter and these other individuals held themselves out as
agents of all companies within the R3 corporate family, without distinction between particular
entities. Mr. Rutter and these other individuals acted as though they had the power to speak on
behalf of and bind all companies within the R3 corporate family, without distinction between the
particular entities. Ripple and XRP II reasonably understood all such individuals to be acting on
behalf of all companies within the R3 corporate family with which Ripple worked, including R3
LLC and R3 HoldCo. These other individuals were intimately involved with the negotiations of
the Agreements and were expected to, and in fact were involved in, R3's performance or lack of
performance under the Agreements. Which of these individuals were employed by which
corporate entities at which points in time is and always has been peculiarly within the knowledge
of R3. Moreover, on information and belief, each of the named companies were directly
involved in the everyday business of each other and were acting in concert with and conspired
with each other.
27. Furthermore, Mr. Rutter or others at R3 intended that Ripple convey their
statements to XRP II in order to achieve R3's clearly stated intention to secure the Option from
XRP II. XRP II received and relied on these representations to its detriment in deciding to enter
into the Option.
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28. The parties first met when Mr. Rutter and R3 co-founders Todd McDonald and
Jesse Edwards came to Ripple's and XRP II's headquarters on October 30, 2014. At that
meeting, Mr. Rutter represented to Ripple's Mr. Larsen that R3 had deep connections with the
most powerful banks in the financial industry, and that if Ripple wanted access to those
connections, it would be critical for Ripple to partner with R3 as R3 already had the banks
up."
"locked The parties had various discussions thereafter about possibilities for working
together.
banks,"
29. On September 15, 2015, R3 announced that "nine of the world's leading
including JPMorgan, Goldman Sachs, and others, had formed an R3 consortium to pursue uses
for distributed ledger technologies, such as Ripple's. Days later, on September 29, 2015, R3
announced that 13 more banks had joined, including Morgan Stanley, among others.
30. On October 19, 2015, Mr. Rutter invited Mr. Larsen to his home in New York and
to a steakhouse nearby for dinner. There, Mr. Rutter laid out for Mr. Larsen R3's plans and
invited Mr. Larsen to consider ways for R3 and Ripple to partner up or otherwise work together.
Mr. Rutter explicitly stated that R3 had no interest in entering, or plans to enter, the cross-border
payments market itself. Rather, R3 planned to focus on working with the banks in its network on
trade settlement and securities services. This made sense to Mr. Larsen, given Mr. Rutter's
background in these areas. As Ripple's cross-border payments technology was already well
developed, Mr. Rutter expressed keen interest in setting up a deal whereby R3 could resell
Ripple's technology to its banking partners, benefiting both parties.
31. On October 27, 2015, Mr. Rutter followed up with an email to Mr. Larsen
expressing that R3 was "quite keen to begin to shape a commercial deal that would help the both
us"
of and was interested in coming to San Francisco to continue the conversation. On
November 9, 2015 Mr. Rutter came to San Francisco to meet with Mr. Larsen and Mr.
Garlinghouse, to continue discussing the ways in which R3 claimed it could assist Ripple in
achieving its goals.
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32. Meanwhile, R3 was continued to make public statements about the alleged growth
and strength of its bank consortium. On October 28, 2015, R3 announced that three more banks
had joined, bringing the total to 25. In a November 30, 2015 news article featured in American
Banker, R3's David Rutter discussed the R3 consortium of banks growing quickly from 9 to 30,
us."
stating that these big banks have "all called Discussing this particular article by email with
Mr. Larsen, the same day, Mr. Rutter reminded Mr. Larsen that he remained interested in
developing ideas around how the companies might cooperate.
33. On December 17, 2015, R3 touted that its consortium had added 12 new banks,
including Banco Santander, to grow to a total of 42. Soon thereafter, R3 publicized its
instrumental role in connecting banks to distributed ledger technology using the digital asset,
Ethereum. In a January 20, 2016 article in International Business Times, R3 represented that its
consortium."
work with Ethereum was a "significant milestone in collaboration for the R3
34. On February 12, 2016, Mr. Rutter again came to San Francisco, joined this time
by other colleagues, to meet once more with Mr. Larsen, Mr. Garlinghouse, and Patrick Griffin,
Ripple's Vice President for Business Development, to continue discussing the ways in which R3
claimed it could assist Ripple in achieving its goals. At this meeting, Mr. Rutter represented that
because R3 was focused on selling services, R3 was well positioned to aid Ripple in promoting
its cross-border payments technology to R3's banking partners. Mr. Rutter also discussed R3's
strategies and how R3 could propel the success of Ripple with R3's extensive bank connections.
At no time did Mr. Rutter discuss potential competition with Ripple in cross-border payments.
To the contrary, Mr. Rutter discussed many ways that the companies could work together to
further the success of Ripple.
35. On February 22, 2016, Mr. Rutter again reached out to the senior leadership at
Ripple, including Mr. Larsen and Mr. Garlinghouse, to remind them that he was interested in
pursuing a partnership. To further entice discussions, Mr. Rutter wrote that he wanted to "make
sure that we are moving forward with our plan to get our tech and commercial teams together.
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We are also quite interested in getting you into our lab . . . . Additionally I am sure you are
running POC's [sic] with our bank members all the time, but coincidentally (or not) I have had
three of them reach out to me in the last week or so to ask about our relationship which leads me
to believe that these banks are about to embark on yet another experiment of some sort. If we
can help you guys by building a broader community around this project by doing it in our lab let
know."
me Later, R3 continued to repeat representations to Ripple about the strength of its
consortium, for example stating in August 2016 that R3's consortium was "a growing group with
members."
so many
36. Thereafter, the parties moved forward with discussions to operationalize Mr.
Rutter's idea of performing a test of Ripple's technology with settlement through XRP with a
number of banks through R3's lab, which later came to be called Project Xenon. In the course of
these conversations, and particularly in conversations between Mr. Rutter and Mr. Larsen, R3
represented to Ripple that its goal in forming a partnership with Ripple was to ensure that the
Ripple Technology would succeed as the dominant technology in the market for cross border
payments. R3 also made clear that it felt this project was important for its own goals, as a
number of banks were themselves pressuring R3 to run the project. In an email dated March 9,
2016, Mr. Rutter represented that R3 "would like to be very clear with the banks that . . . the end
product."
game IS commercialization of a Again, in an email dated March 28, 2016, Mr. Rutter
angle"
represented the same: that achieving this "commercial in partnership with Ripple is "why
anyway."
we all want to do these things
37. As Mr. Rutter confirmed - I have confirmed that we have an

specifically "Guys,
place" -
NDA in place all disclosures of sensitive information between the parties in association with
these discussions occurred under the auspices of a Mutual Confidentiality Agreement. This
agreement required both parties to hold proprietary information of the other in strict confidence,
and to only use such information in connection with discussions, negotiations, or dealings
between the parties about potential business transactions or relationships. And it made clear that
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if one party were to improve or alter the other party's proprietary information, such
improvements of alternations would remain the exclusive property of the disclosing party.
38. In the period leading to the execution of the Agreements, R3 continued to
represent to Ripple that it had the resources and capability to help Ripple succeed as a market
leader. For example, on an April 1, 2016 call, Mr. Larsen expressly stated to Mr. Rutter that
Ripple's goal was to become a market leader in cross-border payments and to grow XRP into the
primary digital asset used among global banks. Mr. Rutter represented that the R3 team not only
understood these goals, but promised it would put Ripple and XRP on the map-just as R3 had
done with Ethereum, another cryptocurrency on the market.
39. By the spring of 2016 the parties had developed a concrete multi-phase plan for a
test of Ripple's technology in R3's lab, involving several R3 banking partners, and for the
concurrent development of a broader commercial partnership between the parties. The test,
known as Project Xenon, would involve a group of banks in R3's consortium using XRP with
the Ripple Technology. Concurrently, the parties planned to develop a sustained commercial
partnership, possibly in the form of a resale agreement whereby R3 would resell Ripple's
technology. R3's representations to Ripple made clear, however, that in whatever form it took,
the commercial partnership would involve R3 leveraging its consortium with the goal of having
financial institutions use XRP as a bridge asset to settle cross-border transactions using the
Ripple Technology.
40. During the summer of 2016, Mr. Rutter also emphasized to Mr. Larsen that it was
critical that R3 be compensated for its efforts in partnering with Ripple through an XRP option
grant. Mr. Rutter represented to Mr. Larsen that this was his preferred form of compensation
because R3 said it believed that it had helped to significantly increase the usage of another
cryptocurrency, Ethereum, and R3 expected a similar result for XRP. Through an option grant,
Mr. Rutter proposed, the parties would ensure they had aligned incentives to work together to
increase the value of XRP by partnering to promote the Ripple Technology.
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41. Also that summer, on July 11, 2016, Ripple Vice President of business
development Patrick Griffin met with R3 co-founder Todd McDonald in New York to continue
to discuss a potential commercial partnership that focused on Ripple's software and the use of
XRP for settlement. At this meeting, Mr. McDonald re-confirmed to Mr. Griffin that, as Mr.
Rutter had stated earlier to Mr. Larsen, R3 had no interest in entering, or plans to enter, the
payments space itself. Rather, R3 was focused on securities and trade finance.
42. Thereafter, R3 continued to represent to Ripple that R3 had the resources and
capabilities to help Ripple be a huge success in the market for cross-border payments.
Throughout the summer, R3 continued to make representations about its continued expansion,
touting the addition Asian, Latina American, African, and other banks and financial institutions
in press releases on June 1, 2016, June 15, 2016, June 23, 2016, July 12, 2016, August 2, 2016.
On August 3, 2016, Clemens Wan, an Associate Director at R3, sent an email to the Ripple team
completed"
assuring Ripple that "[o]nce projects [like Project Xenon] are follow on projects
members."
generally involved "an increase of scope and more Again, on August 15, 2016, Mr.
Wan represented to Ripple that R3 was uniquely capable of delivering eager banks to the table
members."
because R3's consortium was "a growing group with so many More press releases as
to the growth and strength of R3's consortium continued thereafter, with R3 announcing on
August 31, 2016 that its consortium now numbered 60 members.
43. On the eve of Ripple signing the TPA with R3, there were still more assurances
by R3's Mr. Rutter. In communications, R3's Jacob Farber expressed uncertainty in moving
forward with the commercial partnership between the companies that had been discussed
between Ripple's Larsen, Garlinghouse, and Griffin and R3's Rutter and McDonald. To ensure
that Mr. Farber's statements did not reflect a change in R3's intentions or goals with regards to
the TPA and Option, Mr. Garlinghouse emailed Mr. Rutter on Thursday afternoon, August 11,
2016, asking for a call to address areas that had been stalled between the companies. Although
Mr. Rutter was traveling in Australia at the time, and his assistant reported that it was difficult to
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reach him, Mr. Rutter made time to talk with Mr. Garlinghouse the following Monday, August
15, 2016. In that call, Mr. Rutter reiterated that R3 had the resources and capability to help
Ripple become a leader in the market for cross-border payments, assured Mr. Garlinghouse as to
R3's commitment to the future phases of R3's and Ripple's anticipated commercial partnership,
and reassured Mr. Garlinghouse that Mr. Farber simply had become an unnecessary bottleneck to
the negotiation process. Relying on this assurance from Mr. Rutter, Mr. Garlinghouse approved
the signing of the final form of the TPA the following day, August 16, 2016. Mr. Rutter's
position was confirmed a few days after in an email dated August 22, 2016 from R3 co-founder
Mr. McDonald, to Mr. Garlinghouse (and including Mr. Rutter). In that email, Mr. McDonald
stated that he had "caught up with Dave [Rutter] after your [August 15] call earlier....[o]n the
business front, Dave also conveyed that there had been some difficulties in interfacing w Jacob
[Farber]. To make things streamlined going forward, you can interface directly with me on
opportunities."
Xenon and other
C. The Parties Execute the TPA and Option
parties'
44. On August 16, 2016, Ripple and R3 executed the TPA. The terms of the
potential commercial partnership are set forth in the TPA, which states: "The parties will
negotiate in good faith with the goal of executing a term sheet reflecting the key terms [of the
[Xenon]."
commercial partnership] by no later than the conclusion of [] Project The paragraph
further states: "Following the execution of the term sheet, the parties will commence negotiations
of a full agreement [], with the goal of executing the agreement by no later than 30 days after the
sheet."
execution of the term
45. Accordingly, in advance of Project Xenon's conclusion, R3 was obliged to
negotiate in good faith towards a term sheet reflecting the key terms of the commercial
partnership, and to work in good faith to finalize and execute an agreement on the commercial
partnership within 30 days thereafter.
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46. As consideration and incentive for the commercial partnership, the TPA laid out
the terms of an anticipated Option contract to R3: R3 would receive the option to purchase up to
five billion XRP at an exercise price of $0.0085 per unit of XRP, which XRP could then be
liquidated subject to substantial restrictions.
47. The Option itself also declares that the grant of the Option is "in connection with
[the] Technology Provider Agreement regarding Project Xenon and Potential Commercial
Venture[.]"
In other words, the parties used language in both agreements that inextricably tied
them to each other. And this language makes clear that the Option was part and parcel of the
parties'
desire to formalize a commercial partnership.
48. Given R3's representations regarding its ability to assist Ripple in becoming a
market leader, the strength of its consortium, and the fact that it had no plans or intentions to
compete with Ripple in the cross-border payments services market, R3 and XRP II also executed
the Option on September 26, 2016.
D. R3 Fraudulently Induced Ripple To Enter Into The TPA and Option
49. After executing the TPA and the Option, Ripple began to find out the truth; that
R3 had made fraudulent representations, omissions, and half-truths to persuade Ripple and XRP
II to execute the TPA and Option.
50. R3 did not have the resources or capability to help Ripple become a market leader
when it signed the Agreements, as R3 had suggested. R3 was fully aware that what attracted
Ripple to R3 for purposes of establishing a commercial partnership was R3's access to a large
consortium of banks. R3 had represented as much from the first time the parties met in 2014,
up."
when Mr. Rutter told Mr. Larsen that R3 had the banks "locked And R3 made further
representations about how this consortium could help Ripple succeed-such as stating that
community"
Ripple could use the consortium to build a "broader around its technology and
currency and that continuing to work with R3 will lead to "an increase of scope and more
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members"
that test and eventually adopt the Ripple Technology and XRP. But both these
representations were false.
51. Within months after signing the TPA and Option, it was announced that three of
the largest banks in the U.S., JP Morgan, Goldman Sachs, and Morgan Stanley, as well as one of
the largest financial institutions (by revenue) in the world, Banco Santander, would be leaving
R3's consortium. Such drastic departures do not happen overnight. In fact, as was revealed
publicly in November 2016, after the Agreements were signed, that beginning when R3 started a
new funding round in May 2016, some of the consortium's founding members started to express
in conversations internal to R3 that they had concerns the group had grown too large with less
prominent members. A few months later, those members also expressed concerns that R3 was
trying to maintain too much control, and sidelining the interests of the banks themselves. R3 was
undoubtedly aware that, at the time the parties executed the TPA and Option, its consortium was
undergoing significant changes and experiencing fissures that would decrease the value
proposition R3 presented for Ripple. But R3 never revealed this information to Ripple or XRP II
up"
nor clarified its earlier statements that it had the banks "locked and that its consortium was
strong and growing. To the contrary, R3 did the exact opposite: it told Ripple that the
members."
consortium was "a growing group with so many
52. R3's misrepresentations did not stop there. In addition to falsely representing that
up"
it had "locked critical banks, R3 also misrepresented its ability and capacity to transform
Ripple into a market leader and put XRP on the map (just as Mr. Rutter said it had done with
Ethereum). Such an endeavor takes considerable time and effort, but R3 knew it would not have
the time to put in such effort.
53. prior to executing the TPA and R3 knew - but did not tell
Specifically, Option,
Ripple or XRP II - that it would have to focus all its energy and time over the course of the year
on its own fundraising efforts to the neglect of Ripple. And that is what R3 did. After the
Agreements were signed, R3 stepped away. R3 did not assist Ripple with signing up a single
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bank from R3's consortium upon execution of the Option and TPA. Its representatives ignored
emails, or when they did communicate with Ripple, they failed to negotiate in good faith toward
a term sheet. R3's CEO explained - after secured various benefits from Ripple
having leading
to and through the of the Agreements - that R3 did not have the time to help
up signing simply
Ripple. In an email to Mr. Garlinghouse on November 17, 2016, less than a month after the
signing of the Option, Mr. Rutter wrote, "Brad I really like you guys and I have been clear about
that. Love to see you win the payments space and even better I would love to be involved in that
round[.]"
journey. BUT I am personally being crushed by a ridiculously complicated funding In
a later email on April 2, 2017, Mr. Rutter acknowledged to Mr. Garlinghouse and Mr. Larsen
XRP."
that he had "no idea what's going on with Had Ripple and XRP II known that R3 did not
have the ability or resources to be a commercial partner, they would have never entered into the
Agreements.
54. R3 presented incomplete half-truths related to facts about which R3 had superior,
and really exclusive, knowledge. R3 knew it was providing Ripple and XRP II with only one
part of the story, a part that would mislead and give a false impression. R3 had a duty to fully
disclose facts to Ripple. Instead, R3 allowed Ripple and XRP II to reach agreements and part
with value based on mistaken understandings that R3's consortium solidly included such critical
banking targets as JPMorgan, Goldman Sachs, Morgan Stanley, and Banco Santander, was
up,"
growing, and was "locked and that R3 had the resources, time, and energy to help Ripple
achieve its goal of becoming a market leader.
55. Furthermore, despite repeated representations to the contrary, it is now clear that
R3 was already taking concrete steps from the beginning of 2016 to compete with Ripple in the
cross-border payments technology area, at the very time it induced Ripple to enter the
Agreements, and was making such representations and stating incomplete half-truths.
56. R3's CEO and leadership repeatedly assured Ripple that R3 had no plans or
intentions to compete with Ripple on cross-border payments technology. As alleged throughout,
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on multiple occasions, including in October 2015, February 2016, and July 2016, R3 leadership
explicitly represented to Ripple that it had no plans or intentions to enter the cross-border
payment market. Instead, these leaders maintained that R3's goal was to build a long-lasting
relationship between the parties where Ripple could benefit from R3's access to banking
customers, and R3 could reap the financial benefits from Ripple's technological success. These
assurances from those at the highest levels in R3's leadership overcame any isolated suggestion
that may have been made by lower-level R3 employees that R3 may be exploring competing
options; certainly these assurances did not give Ripple reason to believe that R3 was
contemporaneously developing its own cross-border payments product; and created a situation
where R3's leadership needed to correct the record. At bottom, R3 assured Ripple that its goal
"commercialization"
was of Ripple's product-not R3's product. But this too was false.
57. What Ripple did not know, and could not have known as none of these facts were
publicly available or disclosed, was that R3 was already working on a competitive cross-border
payments product of its own many months in advance of the parties signing the Agreements.
Over a year after the Agreements were signed, on October 31, 2017, R3 revealed in statements to
the press that it would soon release its own cross-border payments product to compete directly
with Ripple's product. As Charley Cooper, managing director of R3, stated in an American
Banker article also released that day, "R3's cross-border payments project has been underway for
time."
some In fact, the same article stated that, according to Adam Furgal, head of incubator
and accelerator at R3, "the project started at the beginning of last year and has already been
incubator."
through a number of iterations in R3's In other words, this project was ongoing at
R3 from at least the beginning of 2016, long before R3, Ripple, and XRP II signed their
Agreements, and before R3 senior leaders represented the opposite to Ripple leaders.
58. Soon after the announcements, Ripple approached R3 seeking information to
- parties'
ensure that R3 had not exploited Ripple's intellectual property in violation of the
Mutual Agreement and TPA - in order to build its product. R3

Confidentiality competing
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refused to provide any such information and has now gone silent on its competing product, even
though its October 31, 2017 press release stated the product would be released by the end of
2017.
59. Rather than disclose these facts about its contemporaneous development of a
competing product before the parties signed their Agreements, R3 continued to work in secret
and represented via its highest leadership contrary facts to Ripple, stating that R3 had no
intentions or plans to build its own cross-border payments technology. Given the specific
discussions Ripple and R3 had over R3's plan not to do so, R3 knew that Ripple was entering
into the TPA on mistaken knowledge. Had Ripple and XRP II known the truth, Ripple not only
would have not agreed to enter into the TPA or any commercial partnership with R3, but it most
certainly would not have shared its confidential, proprietary, sensitive, trade secret technology
with R3, nor would XRP II have granted R3 the Option.
60. XRP II granted R3 the Option only "in connection with certain Technology
Venture[.]"
Provider Agreement regarding Project Xenon and Potential Commercial In other
words, the Option was premised upon the consideration that R3 promised in the TPA to work
toward a commercial partnership. But by the time R3 executed the Option, it knew that it would
not honor these promises in the TPA, and furthermore could not honor them due to a lack of time
and resources. Despite knowing that the promises it made to Ripple in the TPA were false and
that these promises were the sole reason for XRP II to enter into the Option contract, R3 did not
undertake to clarify for XRP II before it signed the Option that R3 would not honor and did not
have the ability to honor its performance obligations under the TPA.
61. The same is true as to representations made in the Option itself. R3 represented in
consideration"
the Option that it was issued for "good and valid based on R3's obligation to
negotiate a commercial partnership in good faith under the TPA. But again, at the time R3
represented in the Option that its promises in the TPA, as consideration for the Option, were
valid,"
"good and and as alleged throughout, R3 knew that representations it had made to Ripple,
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with the intention they be communicated to XRP II, were untrue or misleading half truths. In
fact, at the time the Option was signed, R3 knew that it had neither the capability nor the
intention to honor its obligations under the TPA. R3 was fully aware that Ripple and XRP II
were relying on R3 to deliver on its representations made in the TPA and Option as it would
make no economic sense for R3 to receive a windfall option otherwise. Yet even at this point,
R3 continued to fail to disclose and clarify these material facts.
62. R3's false representations were material-indeed essential-to Ripple and XRP
II's decisions to enter into the Agreements. Had Ripple and XRP II known that any of these
representations that induced them to enter into the TPA and Option were false, Ripple and XRP
II would have never entered into the Agreements.
E. R3 Subsequently Breaches the Agreements
63. Beginning in October 2016, it also became clear that R3 had no intention of
timely performing its separate contractual obligations to work in good faith towards establishing
a commercial partnership. Although R3 was required to negotiate in good faith with the goal of
executing a term sheet reflecting the key terms of a commercial partnership by no later than the
conclusion of Project Xenon, R3 failed to do so despite Ripple's repeated requests and Ripple's
provision of draft term sheets to R3.
64. Similarly, when Ripple attempted to engage R3 to begin developing the
commercial agreement anticipated in the TPA, Ripple's efforts were shut down. In or around
October 2016, when a Ripple representative sent an email suggesting that the parties announce
banks,"
publicly that they were in "talks to commercialize [Ripple's technology] for R3 Mr. Wan
members."
responded on October 12, 2016 that "we have not yet discussed with the
65. In fact, in October 2016, R3 virtually stopped any progress moving toward the
promised commercial partnership. Ripple continued to follow up with R3's Jacob Farber and
Isabelle Corbett on a referral agreement, which would have represented the most minimal
commercial partnership. R3 failed to even comment on the referral agreement. Instead, and
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conveniently after the Agreements were signed, Mr. Farber started to complain that even a
simple referral agreement would not offer enough upside for R3. This position was remarkable
given that the terms of a referral agreement had been discussed by the parties for several months,
and covered in detail in a referral agreement delivered to R3 from Ripple on or about July 20,
2016, with R3 having no complaint on the referral compensation.
66. A few days later in October, Ripple's Mr. Griffin met with R3's McDonald to
continue commercial partnership discussions. In that October 2016 meeting, McDonald
cemented this changed course, stating that a referral agreement was not a big enough opportunity
for R3 after all. Thereafter, R3 devoted neither time nor resources to exploring any other
alternatives.
67. In November 2016, having made no progress on establishing a commercial
partnership, Mr. Garlinghouse contacted Mr. Rutter to remind him that the consideration for the
TPA and Option was R3's good faith efforts to build a commercial partnership with Ripple, and
that because the Agreements had real value, R3 should make good on its obligation to work in
good faith with Ripple. Again, nothing changed.
68. Rather than recognizing it had undertaken certain obligations as consideration for
the TPA and Option, R3 continued to ignore Ripple. In response to Mr. Garlinghouse's
reminder, Mr. Rutter confirmed that R3 had no present or future intention of complying with its
obligations. Specifically, Mr. Rutter stated in an email on November 17, 2016 that he would
"[1]ove to see [Ripple] win the payments space and even better I would love to be involved in
that journey. BUT I am personally being crushed by a ridiculously complicated funding
round[.]"
69. On December 13, 2016, Ripple's Griffin contacted R3's McDonald again by
court"
email, stating that "[m]y notes tell me we left off with the ball in R3's and reminding Mr.
McDonald that the focus should continue to be around XRP. Mr. McDonald failed to answer for
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a week, then on December 19, 2016 asked to delay the conversation until sometime in mid-
January 2017.
70. Around this time, not only did R3 continue to ignore its obligations to negotiate a
commercial partnership with Ripple, but it also began to disparage Ripple's business to the very
banks to which R3 had promised it would promote the Ripple technology and XRP. On
December 1, 2016, at a meeting hosted by the Bank for International Settlements, which is
comprised of 60 global central banks, R3's Director of Business Development of South America,
Carlos Arena, strongly criticized digital assets, including XRP. If R3 had any intention of truly
entering a commercial partnership with Ripple to promote the Ripple Technology and XRP, it
would not have discouraged the very banks Ripple was presenting to from using XRP.
71. Despite Ripple's efforts to engage further with R3, R3 continued to be
disengaged, until the Ripple Technology started to gain traction amongst banks, as a result of
Ripple's own extensive efforts, and when XRP experienced a large surge in price and market
capitalization. Months after the Agreements were signed, on April 2, 2017, Mr. Rutter sent an
XRP,"
email acknowledging that R3 had "no idea what's going with but nonetheless claiming
business."
that R3 now wanted to "begin paying closer attention to the R3, however, was
attention"
obligated to "begin paying closer to Ripple eight months earlier, when the TPA was
signed.
72. In the wake of R3's newfound Mr. Rutter and R3's other two co-
interest,
founders, Jesse Edwards and Todd McDonald, set up a meeting with Ripple on May 9, 2017 that
included Mr. Garlinghouse and Mr. Griffin from Ripple. Minutes after the meeting began, when
Mr. Rutter excused himself to tend to other business, Messrs. McDonald and Edwards admitted
that R3 had failed to perform its obligations related to the commercial partnership because R3
busy"
had been "too working on other matters. Nonetheless, Mr. McDonald and Mr. Edwards
promised to come back to Ripple within ten days with a proposal to move forward. This too was
another promise that R3 never fulfilled.
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73. A week later, on May 17, 2017, Mr. Rutter called Mr. Garlinghouse, who on
January 1, 2017 had become CEO of Ripple, to apologize that R3 had not yet made progress on
the negotiation of a commercial partnership with Ripple, and to say that he understood that Mr.
Garlinghouse must be feeling frustrated with R3's failure in this regard. On this call, Mr. Rutter
again reiterated that R3 was neither interested in, nor in the process of, developing a competing
cross-border payments product.
74. Having had enough of R3's empty promises and lack of good faith towards
establishing a commercial partnership and given that the Agreements were inextricably
intertwined such that a breach of either would undo the obligations imposed by the other, on
June 12, 2017, Mr. Garlinghouse, on behalf of both Ripple and XRP II, gave R3 notice of
termination of the TPA and the Option for material breach. Although R3 had ten days to cure its
breaches, it took no steps to do so.
75. R3's breaches have injured Ripple and XRP II. As a result, Ripple has missed out
on opportunities to not only pursue other important deals, but to also form commercial
partnerships with other entities. Without R3 as a partner, Ripple expended substantial time and
resources of its own to successfully promote its Ripple Technology and the use of XRP. Ripple
also gave significant valuable education and to R3 - and access to highly

learning confidential,
trade secret information about cross-border payment solutions - at a time

sensitive, proprietary,
when R3 was, unbeknownst to Ripple, secretly building a cross-border payment product to
compete against Ripple. And XRP II, Ripple's wholly-owned subsidiary, granted an option to
R3 to purchase up to five billion units of XRP at a low strike price.
FIRST CAUSE OF ACTION

(Fraudulent Misrepresentation-Against â€” All Counterclaim Defendants)
76. Counterclaim Plaintiffs re-allege and incorporate herein by reference the
allegations contained in the preceding paragraphs.
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77. R3's statements regarding and relating to its competitive plans, resources, and
ability to engage in a commercial partnership with Ripple were made fraudulently.
78. R3's statements, as described in detail above, were made when R3 knew they
were false, or at the time when R3 knew or possessed information that contradicted its statements
such that R3 lacked a good faith basis for the representations. These statements include, but are
not limited to, the following:
• Statements that R3 had no interest in or plans to enter the cross-border

entering
payments market at in-person meetings on October 19, 2015 and July 11, 2016;
• Statements that R3 was capable of eager banks to the table

uniquely delivering
members"
because R3's consortium was "a growing group with so many in an
email dated August 15, 2016, and in many press releases throughout 2015 and
2016, including on June 1, 2016, June 15, 2016, June 23, 2016, July 12, 2016, and
August 2, 2016;
• Statements that R3 had the resources and to help Ripple become a

capability
leader in the market for cross-border payments at in-person meetings on
November 9, 2015, and July 11, 2016, in emails dated October 27, 2015 and
February 22, 2016, and in a phone call on August 15, 2016.
79. R3's motive and intent in making these statements, as alleged above, was, among
other things, to induce Ripple and XRP II to do business with R3; share with R3 sensitive,
proprietary, confidential, and trade secret information about Ripple's cross-border payment
product at a time when R3 was developing a directly competitive product; and grant an option to
R3 to purchase up to five billion units of digital asset XRP.
80. Ripple and XRP II acted on these representations, including for example by: (1)
executing the TPA; (2) executing the Option; and (3) sharing sensitive, proprietary, confidential,
and trade secret information with R3 about Ripple's cross-border payment solutions.
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81. Had Ripple and XRP II known that these material facts were misrepresented, they
would not have taken actions with respect to R3, including but not limited to, executing the TPA
and Option.
82. As a direct and proximate result of R3's fraudulent statements, Ripple and XRP II
have suffered and will continue to suffer damages.
SECOND CAUSE OF ACTION

(Fraudulent Concealment-Againstâ€” All Counterclaim Defendants)
84. R3 was under a duty to disclose material information to Ripple and XRP II as it
possessed superior knowledge of material information not readily available to Ripple and XRP
II, and knew that Ripple and XRP II would be acting on the basis of mistaken knowledge.
85. R3's partial and ambiguous statements created a further duty to disclose material
information to Ripple and XRP II in order to provide complete disclosure of facts not known to
or reasonably discoverable by Ripple or XRP II.
86. Despite these obligations, and as described in detail above, R3 intentionally
concealed material facts, including but not limited to, (i) its development of a cross-border
payment product that would directly compete with the Ripple Technology; (ii) its inability and
unwillingness to provide resources and assistance to be a commercial partner with Ripple; (iii) its
inability and unwillingness to provide good and valuable consideration in exchange for the
Option; and (iv) the impending departure of key banks from the R3 consortium.
87. R3 intentionally concealed these facts from Ripple and XRP II so that Ripple and
XRP II would do business with R3; share with R3 sensitive, proprietary, confidential, and trade
secret information about Ripple's cross-border payment solutions; and grant an option to R3 to
purchase up to five billion units of digital asset XRP.
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88. Had Ripple and XRP II known that these material facts were concealed or
suppressed, they would not have taken actions with respect to R3, including but not limited to,
executing the TPA and Option.
89. As a direct and proximate result of R3's fraudulent concealment, Ripple and XRP
II have suffered and will continue to suffer damages.
THIRD CAUSE OF ACTION

(Negligent Misrepresentation-Against â€” All Counterclaim Defendants)
91. As alleged above, by R3's own admissions, R3 owed a duty of disclosure to
Ripple and XRP II because it was uniquely aware of facts and had special expertise in working
with the banks in its consortium that rose above and beyond Ripple's and XRP II's. R3
repeatedly touted its unique capability to deliver eager banks to the table because its consortium
members."
was "a growing group with so many It repeatedly made statements to the effect that
it had the "financial markets expertise and relationships to help drive adoption of Ripple in a
team."
manner thats [sic] impactful for you and your Ripple and XRP II did not have reasonable
access to the same information that R3 had.
92. In breach of this duty, R3 made material misrepresentations of fact that it knew or
should have known were false. These statements include, but are not limited to, the following:
• Statements that R3 had no interest in or plans to enter the cross-border

entering
payments market at in-person meetings on October 19, 2015 and July 11, 2016;
• Statements that R3 was capable of eager banks to the table

uniquely delivering
members"
because R3's consortium was "a growing group with so many in an
email dated August 15, 2016, and in many press releases throughout 2015 and
2016, including on June 1, 2016, June 15, 2016, June 23, 2016, July 12, 2016, and
August 2, 2016;
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Page 38 of 41
• Statements that R3 had the resources and to help Ripple become a

capability
leader in the market for cross-border payments at in-person meetings on
November 9, 2015, and July 11, 2016, in emails dated October 27, 2015 and
February 22, 2016, and in a phone call on August 15, 2016.
93. R3 was also negligent in failing to disclose material facts to which Ripple and
XRP II did not have reasonable access. These facts, as alleged above, include but are not limited
to, (i) R3's plans to develop a product that would directly compete with the Ripple Technology;
(ii) R3's inability and unwillingness to provide resources and assistance to be a commercial
partner with Ripple; (iii) R3's inability and unwillingness to provide good and valuable
consideration in exchange for the Option; and (iv) the impending departure of key banks from
the R3 consortium. R3's unique and superior knowledge of these essential facts rendered the
actions Ripple and XRP II took inherently unfair and without adequate disclosure.
94. As alleged above, R3 knew that Ripple and XRP II would and did rely on the
information provided to it, and R3 provided this information for that purpose.
95. Ripple and XRP II reasonably relied on R3's misrepresentations and omissions,
without which Ripple and XRP II would not have agreed to execute the TPA and Option, and
share and trade secret information about Ripple's cross-

sensitive, proprietary, confidential,
border payment technology.
96. As a direct and proximate result of R3's negligent misrepresentation, Ripple and
XRP II have suffered and will continue to suffer damages
FOURTH CAUSE OF ACTION

(Breach of â€”
Contract-Against All Counterclaim Defendants)
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Page 39 of 41
98. On August 16, 2016, R3 LLC and Ripple executed the TPA. As consideration
and incentive for R3 LLC performing its obligations, the TPA also laid out the terms of an
anticipated Option contract to R3.
99. On September 26, 2016, R3 HoldCo LLC and XRP II executed the Option. The
Option expressly states that the grant of the Option is "in connection with [the] Technology
Venture[.]"
Provider Agreement regarding Project Xenon and Potential Commercial
100. Given that the TPA and Option employ language that inextricably intertwines
them together, a breach of either agreement would undo the obligations imposed by the other.
101. Ripple and XRP II honored their obligations under the TPA and Option.
102. As alleged above, R3 breached its obligations under both the TPA and Option by,
among other things, failing to negotiate in good faith towards establishing a commercial
partnership with the goal of executing a term sheet.
103. As a direct and proximate result of R3's breaches of the TPA and Option, Ripple
and XRP II have suffered pecuniary harm in an amount to be determined at trial.
FIFTH CAUSE OF ACTION

(Breach of the Implied Covenant of Good Faith and Fair â€”
Dealing-Against All
Counterclaim Defendants)
105. Upon execution of the TPA and Option, the parties were bound by an implied
duty of good faith and fair dealing.
106. The covenant required, among other things, that R3 not deprive Ripple and XRP
II of the benefits of the TPA and Option, thereby frustrating their rights and reasonable
expectations under the agreements. The implied covenant also required R3 not to engage in acts
of bad faith and not to act unreasonably. The implied covenant claim is based on Ripple's and
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Page 40 of 41
XRP II's implicit rights to receive the benefits of the TPA and Option, which required R3 to act
in good faith towards establishing a commercial partnership.
107. Ripple and XRP II honored their obligations under the TPA and Option.
108. R3's actions were in bad faith and breached the implied covenant of good faith
and fair dealing by impairing Ripple's and XRP II's rights under the TPA and Option, and
parties'
frustrating the intent and the purpose of the TPA and Option. These wrongful acts
include, among other things, R3 disparaging the use of XRP to potential banks that would
implement the Ripple Technology and adopt XRP as a digital asset.
109. As a direct and proximate cause of R3's conduct, Ripple and XRP II have
suffered damages and will continue to suffer damages in the future.
SIXTH CAUSE OF ACTION

â€”
Judgment-Against All Counterclaim
(Declaratory Defendants)
111. There exists a case of actual controversy between R3 and Counterclaim Plaintiffs
as detailed in the allegations above. Specifically, a judicial declaration is necessary and proper at
this time to determine: (i) whether, based on R3's fraudulent and/or negligent misrepresentations
and omissions, the TPA is void and subject to rescission; (ii) whether, based on R3's fraudulent
and/or negligent misrepresentations and omissions or otherwise, the Option is void and subject to
rescission; (iii) whether, due to failure of consideration, the Option became subject to rescission
(iv) whether the TPA and/or Option were validly terminated by Ripple and/or XRP II.
112. Ripple and XRP II have no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, Ripple and XRP II pray for relief as follows:
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Page 41 of 41
A. For a declaration of this Court that the Agreements are invalid, void, and subject
to rescission;
B. For an Order requiring Defendants to pay damages, including punitive damages,
in an amount to be determined at trial;
C. For all damages to Ripple and XRP II arising from R3's misconduct;
attorneys'
E. For an award of Ripple and XRP II's costs and reasonable fees incurred
in connection with this Action; and
F. For such other and further relief as this Court deems just and proper.
JURY DEMAND
Counterclaim Plaintiffs demand a trial by jury on all issues triable by a jury.
Dated: January 5, 2018 QUINN EMANUEL URQUHART 4

SULLIVAN, LLP
By
David M. Grable
David LeRay
Attorneys for Defendants Ripple Labs Inc. and
XRP II, LLC
41
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Ripple Counterclaim

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FILED: NEW YORK COUNTY CLERK 01/05/2018 03:34 PM INDEX NO.

SUPREME COURT OF THE STATE OF NEW YORK

(" Ripple" II"

allegation in the complaint is expressly denied.

1. Paragraph 1 of the complaint states a legal conclusion to which no response is

R3 HoldCo LLC v. Ripple Labs Inc. et al. Index No. 655781/2017

the remaining allegations contained in paragraph 1 of the complaint.

Defendants deny the remaining allegations contained in paragraph 2 of the complaint.

3. Paragraph 3 of the complaint states a legal conclusion to which no response is

contained in paragraph 3 of the complaint.

PARTIES, JURISDICTION, AND VENUE

4. Defendants have insufficient knowledge and information to form a belief as to the

allegations contained in paragraph 4 of the complaint, and so deny the same.

in paragraph 5 of the complaint.

R3 HoldCo LLC v. Ripple Labs Inc. et al. Index No. 655781/2017

7. Paragraph 7 of the complaint states a legal conclusion to which no response is

8. Paragraph 8 of the complaint states a legal conclusion to which no response is

9. Paragraph 9 of the complaint states a legal conclusion to which no response is

so deny the same.

10. Defendants deny the allegations contained in paragraph 10 of the complaint.

R3 HoldCo LLC v. Ripple Labs Inc. et al. Index No. 655781/2017

Contract. Defendants deny the remaining allegations contained in paragraph 12 of the

the remaining allegations contained in paragraph 13.

the remaining allegations contained in paragraph 14.

15. Paragraph 15 of the complaint states a legal conclusion to which no response is

the remaining allegations contained in paragraph 16.

17. Paragraph 17 of the complaint states a legal conclusion to which no response is

allegations contained in paragraph 18 of the complaint.

R3 HoldCo LLC v. Ripple Labs Inc. et al. Index No. 655781/2017

19. Defendants admit the allegations contained in paragraph 19 of the complaint.

21. Defendants deny the allegations contained in paragraph 21 of the complaint.

22. Paragraph 22 of the complaint states a legal conclusion to which no response is

Agreements. Defendants deny the remaining allegations contained in paragraph 22 of the

23. Paragraph 23 of the complaint states a legal conclusion to which no response is

Contract. Defendants deny the remaining allegations contained in paragraph 23 of the

allegations contained in paragraph 24 of the complaint, and so deny these allegations.

26. Paragraph 26 of the complaint states a legal conclusion to which no response is

R3 HoldCo LLC v. Ripple Labs Inc. et al. Index No. 655781/2017

the remaining allegations contained in paragraph 27.

the remaining allegations contained in paragraph 28.

29. Paragraph 29 of the complaint states a legal conclusion to which no response is

Agreements. Defendants deny the remaining allegations contained in paragraph 29 of the

30. Paragraph 30 of the complaint states a legal conclusion to which no response is

paragraph 30 of the complaint.

31. Paragraph 31 of the complaint states a legal conclusion to which no response is

33. Paragraph 33 of the complaint states a legal conclusion to which no response is

R3 HoldCo LLC v. Ripple Labs Inc. et al. Index No. 655781/2017

34. Defendants admit the allegations contained in paragraph 34 of the complaint.

35. Paragraph 35 of the complaint states a legal conclusion to which no response is

Defendants deny the remaining allegations contained in paragraph 35 of the complaint.

36. Paragraph 36 of the complaint states a legal conclusion to which no response is

paragraph 36 of the complaint.

37. Paragraph 37 of the complaint states a legal conclusion to which no response is

paragraph 37 of the complaint.

Defendants have insufficient knowledge or information upon which to form a belief as to

assert the following defenses with respect to the complaint:

FIRST AFFIRMATIVE DEFENSE

(Failure to State a Claim)

claim for which relief may be granted.