It’s 2016, and Ripple has decided to sign a deal with R3 blockchain consortium. Per the agreement, R3 was permitted to buy 5 billion XRP at $0.0085, valued at roughly $42.5 million. R3 would have until September 2019, three years after the agreement was signed, to accumulate the 5 billion units.
Now, it’s 2018, and that 5 billion XRP is valued at over $10 billion, with the current market price of Ripple sitting at $2.05. And the two companies are locked in a legal battle to settle this agreement, as both sides believe that they have been cheated by the other.
Legal proceedings date back to July of 2017 after Ripple executive Brad Garlinghouse attempted to terminate the agreement. At this time, XRP was trading for around $0.26 a coin, making the contractual amount worth more than $1 billion. R3 sued Ripple following Garlinghouse’s decision, holding that the agreement cannot be terminated unilaterally. With the lawsuit, R3 demanded that Ripple honor the original terms of the contract, allowing them to purchase the 5 billion XRP at $0.0085 each.
The original proceedings came to a head in October of 2017 when a Delaware court threw out the case, a ruling that Garlinghouse chalked up as a win for Ripple. However, as on October Fortune article conveys, an anonymous individual connected with the case admitted that, while the Delaware court refused to take the case, the legal battle would continue in California.
According to Fortune, Ripple is launching the legal battle into a new campaign. Last week, Ripple filed a counterclaim against R3 with the New York State court system, arguing that R3 signed the deal in bad faith. Ripple claims that R3 only took the deal to gain insider knowledge into Ripple’s product so that they could replicate it.
The countersuit came right after Ripple soared to a staggering all time high of $3.79, making the contractual agreement in question nearly $19bln.
In the legal document, Ripple lays out the reason for filing their case:
“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…After so inducing Ripple and XRP II, R3 breached separate and distinct promises it made to Ripple and XRP II.”
An example of R3’s misrepresentations, according to Ripple, is that “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.” These banks include JP Morgan, Goldman Sachs, and Morgan Stanley.
In line with the company’s failure to adhere to contractual obligations, Ripple holds that R3 failed to “assist Ripple [in signing] up a single bank.”
Ripple is seeking an undisclosed settlement for damages in the case. Given the complexity of the case-and the complication of Ripple’s surging valuation-it remains to be seen who has the stronger case in the proceedings. It will likely come down to whether or not R3’s lack of transparency with Ripple is material, McGill University law professor Stephen Smith told Fortune:
“If [R3’s] only duty was to provide assistance, and it breached this duty in a significant way (the latter qualification is important since this duty could be breached in trivial ways), for example by doing nothing when it could have done something, then the breach looks material to me.”