Jobanputra v. Kim

Background

Jalak Jobanputra alleged that she and Yoon Kim orally agreed in August 2017 to pool their expertise and capital to invest in cryptocurrencies. Jobanputra allegedly would identify investments using her experience, credentials, business network, and investment analysis, while Kim would provide capital. They allegedly agreed to split profits 20% to Jobanputra and 80% to Kim, and to approve investments jointly.

The complaint alleged that the venture invested in Polkadot DOT tokens, related Kusama KSM tokens, and Blockstack STX tokens. The tokens were initially not transferable. After they became transferable, Jobanputra alleged that Kim did not give her the 20% share she claimed: 1,064 KSM tokens, 106,402.02 DOT tokens after redenomination, and 41,667 STX tokens. Jobanputra also alleged that presentations and communications described the investments as jointly owned.

Jobanputra asserted claims against both Defendants for breach of contract, unjust enrichment, and quantum meruit, a claim seeking payment for the reasonable value of services. She also asserted a breach-of-fiduciary-duty claim against Kim. Defendants moved to dismiss the complaint for failure to state a legally sufficient claim. On such a motion, the court generally accepts well-pleaded factual allegations as true but does not accept unsupported legal conclusions.

Fiduciary-Duty and Joint-Venture Claims

The court held that the complaint did not sufficiently plead a joint venture. Under New York law, a joint venture requires allegations of an agreement to create a profit-making enterprise, intent to be joint venturers, contributions by each party, joint management or control, and an agreement to share profits and losses.

The court found that Jobanputra plausibly alleged an intent to work with Kim in an enterprise beyond an ordinary contract. The alleged oral agreement, joint approval requirement, investor presentation, and communications describing the investments as theirs together supported that inference. But the court found that the complaint did not allege the required agreement to share financial losses. Jobanputra allegedly contributed her labor and could lose anticipated profits, but she did not allege that she invested capital, agreed to take on debt, guaranteed the venture’s obligations, or otherwise agreed to bear losses beyond the value of her services and expected profits. The court therefore held that the complaint failed to plead a joint venture.

The court also rejected Jobanputra’s alternative argument that Kim’s control over the cryptocurrency wallet created a fiduciary relationship. The complaint alleged that both parties had to approve investments, that Jobanputra had substantial fintech experience, and that she was the primary contact with at least one cryptocurrency operator. Those allegations did not plausibly show the unequal or unusually dependent relationship required for a fiduciary duty between commercial parties.

Contract-Enforceability Argument

Defendants argued that Jobanputra acted as an unregistered broker in violation of federal securities law, making the agreement void. The court treated the cryptocurrency tokens at issue as securities under the federal securities laws. It considered factors relevant to broker status, including whether Jobanputra worked for an issuer, received transaction-based compensation, sold securities of other issuers, negotiated with issuers and investors, advised on investments, or actively found investors.

The court concluded that the complaint did not make it implausible that Jobanputra was not a broker. Although the complaint alleged that she gave investment advice and received a percentage-based entitlement, it did not allege that she was anyone’s employee or that she sold securities for other issuers. It was also unclear whether she negotiated with the sellers. The court therefore denied the motion to dismiss the breach-of-contract claim on the broker-registration ground.

Equitable Claims and Leave to Amend

Defendants argued that the unjust-enrichment and quantum-meruit claims were attempts to avoid an illegal contract. Because the court found that the complaint adequately alleged an enforceable contract at this stage, it rejected that argument and otherwise denied the motion as to those claims.

The court granted Jobanputra leave to amend because a valid claim might still be stated. It directed her to amend the complaint to allege that the parties entered into a joint venture no later than October 21, 2022.

Disposition

The court granted in part and denied in part Defendants’ motion to dismiss. It dismissed Jobanputra’s first claim to the extent it alleged breach of a joint-venture agreement, dismissed her fourth claim for breach of fiduciary duty against Kim, and otherwise denied the motion. The court also granted leave to amend.