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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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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.

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

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.

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

required.

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

required.

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

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.

14. 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 14.

15. Paragraph 15 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, refer to the Option Contract for an accurate and complete

statement of its terms, and otherwise deny the remaining allegations contained in paragraph 15.

16. 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 16.

17. Paragraph 17 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, refer to the Option Contract for an accurate and complete

statement of its terms, and otherwise deny the remaining allegations contained in paragraph 17.

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.

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

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.

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

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.

26. Paragraph 26 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, refer to the Option Contract for an accurate and complete

statement of its terms, and otherwise deny the remaining allegations contained in paragraph 26.

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27. 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 27.

28. 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 28.

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

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.

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

required. To the extent a response is required, Defendants deny the allegations contained in

paragraph 30 of the complaint.

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

required.

COUNT 2

32. Defendants repeat and reiterate each of their foregoing responses as if fully set

forth therein.

33. Paragraph 33 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, refer to the Option Contract for an accurate and complete

statement of its terms, and otherwise deny the remaining allegations contained in paragraph 33.

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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

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.

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

required. To the extent a response is required, Defendants deny the allegations contained in

paragraph 36 of the complaint.

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

required. To the extent a response is required, Defendants deny the allegations contained in

paragraph 37 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)

The complaint, and each cause of action purportedly alleged therein, is barred, in whole

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)

The complaint, and each cause of action purportedly alleged therein, is barred, in whole

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)

The complaint, and each cause of action purportedly alleged therein, is barred, in whole

or in part, by reason of R3 HoldCo's failure to mitigate its purported damages.

TENTH AFFIRMATIVE DEFENSE

(Fraud in the Inducement)

The complaint, and each cause of action purportedly alleged therein, is barred, in whole

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)

The complaint, and each cause of action purportedly alleged therein, is barred by virtue

of the fact that there is another pending action involving the same parties and claims in

California.

TWELFTH AFFIRMATIVE DEFENSE

(Statute of Frauds)

The complaint, and each cause of action purportedly alleged therein, is barred, in whole

or in part, by the Statute of Frauds.

THIRTEENTH AFFIRMATIVE DEFENSE

(Fraudulent Concealment)

The complaint, and each cause of action purportedly alleged therein, is barred, in whole

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)

The complaint, and each cause of action purportedly alleged therein, is barred, in whole

or in part, by forum non conveniens.

FIFTEENTH AFFIRMATIVE DEFENSE

(Limitation of Liability and Damages)

The complaint, and each cause of action purportedly alleged therein, is barred, in whole

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)

The complaint, and each cause of action purportedly alleged therein, is barred, in whole

or in part, by reason of the want of consideration to support the Option Contract.

SEVENTEENTH AFFIRMATIVE DEFENSE

(Failure of Consideration)

The complaint, and each cause of action purportedly alleged therein, is barred, in whole

or in part, by reason of the failure of consideration to support the Option Contract.

EIGHTEENTH AFFIRMATIVE DEFENSE

(Repudiation)

The complaint, and each cause of action purportedly alleged therein, is barred by virtue

of the fact that R3 HoldCo and R3 LLC repudiated the Agreements.

NINETEENTH AFFIRMATIVE DEFENSE

(Abandonment/Abrogation)

The complaint, and each cause of action purportedly alleged therein, is barred by virtue

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 — 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-Against— All Counterclaim Defendants)

83. Counterclaim Plaintiffs re-allege and incorporate herein by reference the

allegations contained in the preceding paragraphs.

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 — All Counterclaim Defendants)

90. Counterclaim Plaintiffs re-allege and incorporate herein by reference the

allegations contained in the preceding paragraphs.

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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• 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 —
Contract-Against All Counterclaim Defendants)

97. Counterclaim Plaintiffs re-allege and incorporate herein by reference the

allegations contained in the preceding paragraphs.

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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 —
Dealing-Against All
Counterclaim Defendants)

104. Counterclaim Plaintiffs re-allege and incorporate herein by reference the

allegations contained in the preceding paragraphs.

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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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


—
Judgment-Against All Counterclaim
(Declaratory Defendants)

110. Counterclaim Plaintiffs re-allege and incorporate herein by reference the

allegations contained in the preceding paragraphs.

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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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

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