MEMORANDUM OF LAW IN OPPOSITION January 14, 2022

On May 11, 2018 a Motion-Secondary was filed involving a dispute between Cresco Labs Llc, An Illinois Limited Liability Company, Cresco Labs New York, Llc, A New York Limited Liability Company, and Eric Sirota, Fiorello Pharmaceuticals, Inc., A New York Corporation, John Does 1 - 10, Susan Yoss, for Commercial Division in the District Court of New York County.

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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
----------------------------------------------------------- X
CRESCO LABS NEW YORK, LLC, a New :
York limited liability company, and CRESCO : Index No. 652343/2018
LABS, LLC, an Illinois limited liability :
company, : Hon. Andrew Borrok
:
Plaintiffs/Counterclaim Defendants, :
: Mot. Seq. No. 14
v. :
:
FIORELLO PHARMACEUTICALS, INC., a :
New York corporation, :
:
Defendant/Counterclaimant. :
:
----------------------------------------------------------- X

MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANT’S MOTION TO
PRECLUDE EXPERT REPORT OF A. SCOTT DAVIDSON

JENNER & BLOCK LLP
Stephen L. Ascher
Jason P. Hipp
Melissa T. Fedornak
Counsel for Plaintiffs
Cresco Labs New York, LLC and
Cresco Labs, LLC

1155 Avenue of the Americas
New York, New York 10036
212-891-1670
sascher@jenner.com

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TABLE OF CONTENTS

TABLE OF AUTHORITIES .......................................................................................................... ii

PRELIMINARY STATEMENT .....................................................................................................1

BACKGROUND .............................................................................................................................2

A. The No-Shop Provision........................................................................................................2

B. Davidson’s Expert Report ....................................................................................................2

ARGUMENT ...................................................................................................................................3

I. Davidson’s Opinions Are Appropriate Subject Matter for an Expert..................................3

A. Calculation of Damages ...........................................................................................3

B. The Unique Circumstances Surrounding the No-Shop Provision ...........................8

II. Davidson’s Opinions Are Reliable. ...................................................................................10

A. Davidson’s Calculation of Damages Is Supported by the Factual Record
and Is Consistent with New York Law on Damages .............................................10

B. Davidson’s Conclusions About the Scarcity and Rising Prices of New
York Licenses in 2018 Are Well-Founded ............................................................15

C. Davidson’s Comments About Cresco Being Forced to Pay More for a
Replacement Transaction Are Supported by the Record .......................................16

CONCLUSION ..............................................................................................................................16

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TABLE OF AUTHORITIES

Page(s)

CASES

180 Water St. Assocs., L.P. v. Lehman Bros. Holdings,
7 A.D.3d 316 ..............................................................................................................................6

1861 Cap. Master Fund, LP v. Wachovia Cap. Markets, LLC,
95 A.D.3d 620 (1st Dep’t 2012) ................................................................................................8

Adar Bays, LLC v. GeneSYS ID, Inc.,
No. 51, 2021 WL 4777289 (N.Y. Oct. 14, 2021) ....................................................................11

Alvarez v. First Nat. Supermarkets, Inc.,
11 A.D.3d 572 (2d Dep’t 2004) .................................................................................................9

Ambac Assur. Corp. v. Countrywide Home Loans, Inc.,
147 A.D.3d 574 (1st Dep’t 2017) ..............................................................................................5

Aroneck v. Atkin,
90 A.D.2d 966 (4th Dep’t 1982) ..............................................................................................11

AU New Haven, LLC v. YKK Corp.,
No. 15-CV-3411, 2019 WL 1254763 (S.D.N.Y. Mar. 19, 2019) ..............................................7

Cerberus Capital Mgmt., L.P. v. Snelling & Snelling, Inc.,
No. 60045/2005, 12 Misc. 3d 1187(A) (Sup. Ct. N.Y. Cnty. 2005) ................................6, 7, 13

Credit Suisse First Bos. v. Utrecht-Am. Fin. Co.,
84 A.D.3d 579 (1st Dep’t 2011) ....................................................................................5, 11, 13

Dorchester Pub. Co. v. Lanier,
No. 01 CIV. 8792, 2006 WL 4388035 (S.D.N.Y. Mar. 19, 2006) ..........................................12

Freund v. Washington Square Press,
34 N.Y.2d 379 (1974) ................................................................................................................3

Garda USA, Inc. v. Sun Capital Partners,
194 A.D.3d 545 (1st Dep’t 2021) ..............................................................................................6

Good Hill Master Fund L.P. v. Deutsche Bank AG,
146 A.D.3d 632 (1st Dep’t 2017) ..............................................................................................9

Goodstein Const. Corp. v. City of New York,
80 N.Y.2d 366 (N.Y. 1992) .......................................................................................................6

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Granfeld II, LLC v. Kohl's Dep't Stores, Inc.,
48 Misc. 3d 1210(A), 18 N.Y.S.3d 579 (N.Y. Sup. 2015) ........................................................3

Greasy Spoon, Inc. v. Jefferson Towers, Inc.,
75 N.Y.2d 792 (1990) ..............................................................................................................12

Heffernan v. Norstar Bank of Upstate New York,
125 A.D.2d 887 (3d Dep’t 1986) ...............................................................................................9

Holy Properties Ltd. v. Kenneth Cole Prods., Inc.,
661 N.E.2d 694 (N.Y. 1995) ....................................................................................................11

Kenford Co. v. Erie Cty.,
67 N.Y.2d 257 (1986) ................................................................................................................5

Lager Assocs. v. City of New York,
304 A.D.2d 718 (2d Dep’t 2003) ...............................................................................................4

Mariah Re Ltd. v Am. Family Mut. Ins. Co.,
52 F Supp 3d 601 (S.D.N.Y. 2014) ...........................................................................................7

Merlin Biomed Asset Mgmt., LLC. v. Schoor,
5 Misc. 3d 1011(A), 798 N.Y.S.2d 711 (Sup. Ct. N.Y. Cnty. 2004) .........................................9

Nonnon v. City of New York,
88 A.D.3d 384 (1st Dep’t 2011) ..............................................................................................10

People v. Miller,
91 N.Y.2d 372 (1998) ................................................................................................................9

People v. Rivers,
18 N.Y.3d 222 (2011) ................................................................................................................3

Samson Lift Techs., LLC v. Jerr-Dan Corp.,
139 A.D.3d 534 (1st Dep’t 2016) ..............................................................................................4

Sharma v. Skaarup Ship Mgmt. Corp.,
916 F.2d 820 (2d Cir. 1990)...............................................................................................11, 12

Trimarco v. Data Treasury Corp.,
36 Misc. 3d 1237(A), 961 N.Y.S.2d 362 (Sup. Ct. Suffolk Cnty. 2012) ................................12

Wathne Imports, Ltd. v. PRL USA, Inc.,
101 A.D.3d 83 (1st Dep’t 2012) ................................................................................................3

iii

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Plaintiffs Cresco Labs New York, LLC and Cresco Labs, LLC (“Cresco”) submit this

memorandum of law in opposition to Defendant Fiorello Pharmaceuticals, Inc.’s motion to

preclude the expert report of A. Scott Davidson (“Davidson Report”).

PRELIMINARY STATEMENT

The Court should reject Fiorello’s motion to preclude the Davidson Report, which

demonstrates that there is a stable foundation from which to calculate Cresco’s damages, and

offers two methods by which those damages can be measured. Fiorello argues, paradoxically,

both that Davidson’s opinions are not appropriate for an expert because they are common sense,

and also that Davidson’s opinions are wrong. Fiorello’s motion has no merit.

First, Davidson offers opinions about appropriate topics for an expert. A qualified expert

may give opinions concerning specialized knowledge that are beyond the knowledge or

understanding of the jury and that will help the jury determine a fact in issue. The Davidson

Report offers classic expert opinions: he explains that the mutual No-Shop Provision was

unusual as a matter of market practice in that it required the acquiror (Cresco) as well as the

seller (Fiorello) not to discuss a competing transaction with third parties; he discusses the rising

market prices applicable to the scarcity of available New York licenses; in light of these and

other factors, he calculates Cresco’s replacement cost damages attributable to the breach; and he

also calculates Fiorello’s gain from the breach as an alternative measure of damages.

These opinions do not infringe on the province of the court or the jury, as opinions with

respect to industry practices and damages are typical expert opinions. His opinions are also

consistent both with this Court’s holding that the No-Shop Provision was a binding obligation on

both parties and with the law of damages.

Finally, Davidson’s opinions are reliable. Fiorello’s attempts to dispute the content or

assumptions in Davidson’s opinions at this stage of the case are improper, as these issues go to

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the weight, not the admissibility, of Davidson’s testimony, and should be decided either by the

jury at trial, or, at most, as part of a motion in limine before trial. In any event, Fiorello’s

attempts to dispute the validity of Davidson’s opinions fail, as the evidence in the record

supports each of his opinions. Accordingly, Fiorello’s motion should be denied.

BACKGROUND

A. The No-Shop Provision

This case centers on a No-Shop Provision in a letter of intent (“LOI”) between Cresco

and Fiorello. The LOI set out the financial terms under which Cresco would acquire 100% of

Fiorello, one of ten licensed cannabis companies in New York. Through the No-Shop Provision,

both parties mutually agreed to refrain from discussing an equivalent transaction with any third

party.

Despite Fiorello’s commitment not to discuss the sale of its stock to any third party while

the No-Shop Provision with Cresco was in place, Fiorello egregiously breached the No-Shop

Provision by discussing the sale of its stock with multiple third parties, and ultimately entered

into a deal with one of them. Fiorello’s breach meant that Cresco could no longer acquire

Fiorello’s stock and obtain a foothold in the New York market without paying a premium for the

last available New York-licensed company—precisely the harm the No-Shop Provision was

intended to prevent. Cresco brought this action against Fiorello, seeking damages caused by

Fiorello’s breach of contract.

B. Davidson’s Expert Report

As part of its opposition to Fiorello’s summary judgment motion, Cresco produced the

expert report of A. Scott Davidson. Davidson’s report draws on his substantial experience with

respect to no-shop provisions, and in valuation of M&A transactions and the cannabis industry,

to calculate Cresco’s damages in two ways: (1) the “replacement cost” Cresco incurred to

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complete a substitute transaction, and (2) the gains Fiorello obtained by consummating its

transaction with a third party for a higher price than Cresco had agreed to pay. Ex. C at 3-4.

To explain the basis for his damage calculations, Davidson’s report also explains the

unusual bilateral nature of the No-Shop Provision at issue in this case, and the steep competition

for multi-state operators to acquire the last two remaining New York licensed companies. Thus,

Davidson opines that, given “the limited number of cannabis licenses for the state of New York

and the then market appetite to acquire one, Fiorello’s desire for such ‘two-way’ exclusivity (and

Cresco’s willingness to grant it) is understandable.” Id. at 6. He notes that “in making that

commitment, Cresco can itself be thought of as incurring a cost (or at least accepting the risk of a

meaningful opportunity cost) if it were to be that the acquisition of Fiorello did not proceed and

Cresco was forced to make a substitute or replacement acquisition later at a higher price in the

face of an active market for license acquisitions.” Id.

ARGUMENT

I. Davidson’s Opinions Are Appropriate Subject Matter for an Expert

“[E]xpert opinion is proper when it would help to clarify an issue calling for professional

or technical knowledge, possessed by the expert and beyond the ken of the typical juror.” People

v. Rivers, 18 N.Y.3d 222, 228 (2011). Davidson’s opinions on damages and no-shop provisions

are admissible because they help to clarify the damages Cresco incurred and the gain Fiorello

received, and demonstrate that there is a “stable foundation for a reasonable estimate” of

Cresco’s damages. Freund v. Washington Square Press, 34 N.Y.2d 379, 383 (1974).

A. Calculation of Damages

Experts are frequently used to calculate damages. See, e.g., Wathne Imports, Ltd. v. PRL

USA, Inc., 101 A.D.3d 83 (1st Dep’t 2012); Granfeld II, LLC v. Kohl's Dep't Stores, Inc., 48

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Misc. 3d 1210(A), 18 N.Y.S.3d 579 (N.Y. Sup. 2015). Fiorello raises three objections to

Davidson’s damages calculation, but all three objections are meritless.

First, Fiorello contends that Davidson’s damages calculation is “unnecessary” because it

relies on “simple arithmetic,” “subtraction,” and “multiplying two numbers.” Fiorello Br. 4. But

experts are often permitted to calculate damages that are based on basic arithmetic. Samson Lift

Techs., LLC v. Jerr-Dan Corp., 139 A.D.3d 534, 535 (1st Dep’t 2016) (relying on expert’s

damages calculation that subtracted actual sales from projected sales); Lager Assocs. v. City of

New York, 304 A.D.2d 718, 720 (2d Dep’t 2003) (allowing both parties’ experts to submit

damages calculations of rent owed due to nonpayment). Here, Davidson’s damages calculations

are admissible because they will be helpful to the jury—they determine the value of Fiorello’s

transaction with a third party, the value of Cresco’s replacement acquisition, the maximum value

of the LOI, and the value of a transaction under the LOI if Cresco and Fiorello had been required

to make minor adjustments to certain terms in order to obtain regulatory approval. His

calculations were also dependent on determining the value of stock at a certain point in time,

which further underscores that his calculations will be helpful to the jury and are therefore

admissible. That his calculations are easy to understand, based on executed contract provisions

in the Cresco/Fiorello LOI and each party’s subsequent merger agreements, supports the

conclusion that Cresco has offered a non-speculative basis to measure damages.

Second, Fiorello contends that Davidson makes an improper “legal argument that Cresco

is entitled to expectation damages.” Fiorello Br. 6. This is a straw man argument, as Davidson

does not opine on what award Cresco is legally entitled to; he merely sets out as a factual matter

the costs that Cresco incurred and the benefit that Fiorello received as a result of the breach,

which led to Fiorello selling itself to a third party for a much higher price, and forced Cresco to

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enter into a replacement transaction for an even higher price. Unlike the only case Fiorello cites

in support of this argument where an expert’s report on damages was precluded, Davidson does

not opine on “the availability of certain remedies and the burden of proof that may apply to

plaintiffs’ claims.” Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 147 A.D.3d 574 (1st

Dep’t 2017).1

Nor do Davidson’s opinions conflict with the “law of the case,” as Fiorello claims. Br. 8.

This Court has held that the No-Shop Provision was a “valid and binding agreement,” and the

LOI in which the No-Shop Provision appeared was a Type II preliminary agreement which

bound the parties “to negotiate the open issues in good faith in an attempt to” complete the

transaction outlined in the LOI. NYSCEF Doc. No. 119 at 7-8. The Court has not ruled on

whether expectation damages are available here for breach of the binding No-Shop Provision.

Davidson’s opinions on damages are consistent with the Court’s rulings; they explain why the

LOI, which set out financial terms for Cresco’s acquisition of Fiorello, provides a non-

speculative basis to measure damages for Fiorello’s breach of the binding No-Shop Provision.

This is consistent with New York law requiring that damages “not be merely speculative,

possible, or imaginary,” Kenford Co. v. Erie Cty., 67 N.Y.2d 257, 261 (1986), and that there only

needs to be a “stable foundation for a reasonable estimate” of damages.

Davidson’s opinions also do not conflict with “the established law of New York,” as

Fiorello claims. Fiorello Br. 8. Fiorello incorrectly claims that the “Goodstein line of cases

holds without exception that a cause of action for an alleged breach of a preliminary agreement is

1
Fiorello also cites two cases for the proposition that the amount of damages is a question of
fact, and the measure of damages is a question of law. Fiorello Br. 6 (citing Credit Suisse First
Bos. v. Utrecht-Am. Fin. Co., 84 A.D.3d 579, 580 (1st Dep’t 2011); Lucente v. Int'l Bus.
Machines Corp., 310 F.3d 243, 261 (2d Cir. 2002)). Neither case concerned the admissibility of
expert opinions.

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limited to, at most, out-of-pocket reliance damages.” Id. But as we have explained in more

detail in our opposition to Fiorello’s motion for summary judgment, see Ex. 2, 3, the three cases

Fiorello cites all involve situations where the plaintiff’s claimed damages were truly speculative:

• In Goodstein Const. Corp. v. City of New York, 80 N.Y.2d 366 (N.Y. 1992), the

agreement was terminable by the City at will, so the plaintiff contended that the City

breached an obligation to negotiate where there was expressly no obligation or

expectation that the parties would consummate a transaction.

• In Garda USA, Inc. v. Sun Capital Partners, 194 A.D.3d 545 (1st Dep’t 2021), the

requested damages were even more speculative, because the allegedly breached

confidentiality agreement did not even set forth financial or other material terms of

the transaction, which were the subject of ongoing negotiations and reflected only in

a separate “unsigned letter of intent.” 194 A.D.3d at 547.

• And in 180 Water St. Assocs., L.P. v. Lehman Bros. Holdings, 7 A.D.3d 316, 317,

the duration of the lease—an essential term of a commercial lease—was too vague to

be enforced.

By contrast to these cases, Fiorello did not have an express contractual right to terminate

the LOI; the financial terms of the transaction were fully negotiated and set forth in the executed

LOI; and there was nothing vague about those economic terms.

Cerberus Capital Mgmt., L.P. v. Snelling & Snelling, Inc., No. 60045/2005, 12 Misc. 3d

1187(A) (Sup. Ct. N.Y. Cnty. 2005), decided after Goodstein, is more on point. In that case,

Justice Moskowitz found “persuasive” the prospective purchaser’s lost profits claim for breach

of an exclusive negotiating agreement in an LOI based on “comparing the terms of its proposed

asset purchase agreement, [the competitor’s] actual asset purchase agreement and any related

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financial documentation.” Id. at *16. Cerberus rejected the defendant’s argument that the

breach of a letter agreement did not cause measurable damages in the no-shop context “since it is

impossible to determine what agreement would have been reached and, therefore, no way to

measure loss expectation.” Id. Instead, the court recognized that New York damages law

“requires only that damages be capable of measurement based upon known reliable factors

without undue speculation,” id. (quoting Ashland Mgmt., Inc. v. Janien, 82 N.Y.2d 395, 403

(1993)), and that the comparable contract made it possible to measure damages in a non-

speculative manner. Accordingly, Davidson’s calculation of expectation damages for breach of a

no-shop provision is fully consistent with New York law.

Third, Fiorello argues that Davidson’s calculation of disgorgement damages should be

precluded because it is “irrelevant surplusage” and “an entirely new theory of damages.”

Fiorello Br. 18-19. But it is acceptable, and, indeed, helpful for the Court, for an expert to

calculate damages under multiple theories. See, e.g., AU New Haven, LLC v. YKK Corp., No.

15-CV-3411, 2019 WL 1254763, at *24 (S.D.N.Y. Mar. 19, 2019) (denying Daubert motion to

exclude expert that used lost profits and disgorgement calculations to determine damages).

Disgorgement damages are commonly awarded as a contract remedy in comparable

circumstances. See Ex. 2 at 17. And an expert report is the typical vehicle for discussing

damages theories, not a complaint, which must merely set out “factual allegations showing

damages.” Mariah Re Ltd. v Am. Family Mut. Ins. Co., 52 F Supp 3d 601, 611 (S.D.N.Y.

2014), aff’d sub nom. Maria Re Ltd. ex rel. Varga v. Am. Family Mut. Ins. Co., 607 Fed Appx

123 (2d Cir. 2015). The Amended Complaint clearly sets out the allegations supporting

disgorgement damages: it alleges that Fiorello “capitalized on rising market prices to sell

Fiorello for a higher price.” Ex. 1 ¶ 67. Fiorello cites no cases in support of its contention that

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specific damages theories are required to be set out in a complaint.2 Fiorello relies only on the

preclusion of an expert report in 1861 Cap. Master Fund, LP v. Wachovia Cap. Markets, LLC,

95 A.D.3d 620, 621 (1st Dep’t 2012), but in that case, the report was improperly introduced after

the close of discovery. Cresco timely submitted Davidson’s calculation of disgorgement

damages in September 2021, well before the deadline for the close of expert discovery in March

2022. Once again, Fiorello complains only about the consequences of its own strategic decision

to refuse expert discovery and instead file an early motion for summary judgment.

B. The Unique Circumstances Surrounding the No-Shop Provision

Davidson also offers opinions about the unique circumstances surrounding the No-Shop

Provision, including the bilateral nature of the provision and the market conditions at the time.

He explains that as a matter of industry practice in the M&A markets, two-way exclusivity is

unusual, and that by agreeing to two-way exclusivity, “Cresco gave up possible alternative

market opportunities,” which means that Cresco was “incurring a cost,” especially because New

York licenses were scarce at that time. Ex. C at 20. These opinions are admissible because they

are based on Davidson’s specialized experience in cannabis markets and with exclusivity

provisions, and they help establish the cost Cresco incurred by agreeing to be bound by an

exclusivity provision at a time when the market for New York cannabis licenses was scarce.

Fiorello contends that Davidson cannot offer any opinions related to the No-Shop

Provision because “the contract language is unambiguous.” Fiorello Br. 5. But Davidson is not

offering the industry practice opinion to try to vary the meaning of an unambiguous contract.

Rather, the Davidson Report illuminates an unambiguous provision in order to explain the

2
Even if Plaintiffs’ disgorgement theory of damages needs to be explicitly incorporated into a
pleading, the complaint can be deemed amended to incorporate the theory. This would cause no
prejudice to Fiorello, which has refrained from engaging in expert discovery on damages
calculations.

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rationale for his damages calculation. Accordingly, Fiorello’s reliance on Good Hill Master

Fund L.P. v. Deutsche Bank AG, 146 A.D.3d 632, 637 (1st Dep’t 2017), is inapposite. Unlike in

that case, which involved contract interpretation, there is an unambiguous No-Shop Provision

here, and Davidson can opine on typical business practices as they relate to no-shop provisions.

See, e.g., Heffernan v. Norstar Bank of Upstate New York, 125 A.D.2d 887, 889 (3d Dep’t 1986)

(considering expert opinion “as to commercial practices”); Alvarez v. First Nat. Supermarkets,

Inc., 11 A.D.3d 572, 573 (2d Dep’t 2004) (concluding that trial court erred in excluding expert

testimony regarding industry practice); Merlin Biomed Asset Mgmt., LLC. v. Schoor, 5 Misc. 3d

1011(A), 798 N.Y.S.2d 711 (Sup. Ct. N.Y. Cnty. 2004) (considering expert testimony regarding

“standard practice” for documenting buyout agreements and regarding payments in “standard

deals”).

Fiorello also claims Davidson’s opinions about the New York market for cannabis

licenses are not admissible because they are “not beyond the knowledge of the fact-finder,”

Fiorello Br. 3, and not “based on personal knowledge,” id. at 11. Neither contention supports

precluding Davidson’s opinions. First, even if some jurors have a background in economics, it is

still helpful to the average juror to hear Davidson’s opinions that New York cannabis companies

were scarce at the time Fiorello breached the No-Shop Provision and that this had the effect of

raising the price Cresco subsequently had to pay for a replacement acquisition.

Second, New York law does not require an expert’s opinions to be based only on facts

“within his personal knowledge. Rather, an expert’s opinions may rest on facts in evidence.”

People v. Miller, 91 N.Y.2d 372, 379 (1998) (internal citation and quotation marks omitted).

Here, Davidson’s opinion is based on his demonstrated knowledge of the New York cannabis

market, his familiarity generally with no-shop provisions in M&A transactions, and the facts in

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evidence, such as the LOI, Cresco and Fiorello’s deal documents, and evidence that the New

York-licensed company Etain was not available for sale. Ex. C at 11, 15 & n.28.

II. Davidson’s Opinions Are Reliable.

Fiorello challenges the content of Davidson’s conclusions, Fiorello Br. 11-18, and claims

Davidson’s analysis is “riddled with holes and inconsistencies.” Id. at 12. Even if these claims

were true, which they are not, none of them is an appropriate ground to preclude an expert report

at summary judgment. “[C]riticisms of [an expert’s] study go to the weight of the evidence [at

trial], not its admissibility.” Nonnon v. City of New York, 88 A.D.3d 384, 398 (1st Dep’t 2011).

These are issues that Fiorello can raise on cross-examination of Davidson, or at most in a motion

in limine before trial, but they are not reason to preclude his entire report at this stage in the

proceedings.

In any event, as detailed below, Davidson’s assumptions and opinions are sound and

supported by evidence in the record.

A. Davidson’s Calculation of Damages Is Supported by the Factual Record and Is
Consistent with New York Law on Damages

Fiorello contends that Davidson’s calculation of replacement cost damages is incorrect

because his calculation included a transaction that did not close until the year after Fiorello’s

breach. Fiorello Br. 16-18. Whether Davidson should have used a 2018 price or a 2019 price is

an issue that goes to the weight, not the admissibility, of Davidson’s calculation, and accordingly

the Court need not reach this issue now.

Regardless, there is support for the amounts Davidson used in his damages calculation,

which is based on the parties’ reasonable expectations at the time of the contract. Cresco entered

into the No-Shop Provision and LOI with Fiorello in order to be able to enter the New York

market by acquiring Fiorello at the price outlined in the LOI. When Fiorello breached the No-

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Shop Provision and sold itself to a competitor of Cresco, Cresco was no longer able to enter the

New York market at the price the parties had initially contemplated. Consistent with its business

plan, and to minimize the substantial losses Cresco would have incurred from being shut out of

the New York market altogether, Cresco covered its losses by acquiring a different New York

company to replace Fiorello, in keeping with its obligation under New York law to mitigate its

damages. Holy Properties Ltd. v. Kenneth Cole Prods., Inc., 661 N.E.2d 694, 696 (N.Y.

1995). The scarce market required Cresco to incur substantial additional costs to acquire a more

expensive (but otherwise equivalent) replacement company. Davidson calculated those

additional costs, which he characterized as “replacement cost” damages. This measure of

damages is entirely consistent with the New York law of expectation damages, which are

intended to “plac[e] the aggrieved party in the same economic position it would have been in had

both parties fully performed.” Adar Bays, LLC v. GeneSYS ID, Inc., No. 51, 2021 WL 4777289,

at *10 n.8 (N.Y. Oct. 14, 2021).

Fiorello contends that Davidson’s replacement cost damages calculation is wrong

because under New York law, damages for breach of a contract to sell an asset are measured by

the difference between the contract price and the fair market value at the time of breach. In

support, Fiorello cites cases regarding the sale of stock, debt, or another asset with a

“determinable market value.” Sharma v. Skaarup Ship Mgmt. Corp., 916 F.2d 820, 825 n.4 (2d

Cir. 1990) (damages for the deprivation of either financing or vessels which “each had a market

value at the time of the breach”); Credit Suisse First Bos. V. Utrecht-Am. Fin. Co., 84 A.D.3d

579, 580 (1st Dep’t 2011) (damages for termination of agreement to sell distressed debt);

Aroneck v. Atkin, 90 A.D.2d 966 (4th Dep’t 1982) (damages for breach of contract to purchase

stock); Trimarco v. Data Treasury Corp., 36 Misc. 3d 1237(A), 961 N.Y.S.2d 362 (Sup. Ct.

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NYSCEF DOC. NO. 536 RECEIVED NYSCEF: 01/14/2022

Suffolk Cnty. 2012) (damages for breach of agreement regarding exercise of stock options).

Those cases are inapposite here for a number of reasons.

First, the conveyance of 100% of Fiorello’s shares to Cresco would have been

accompanied by the transfer of a unique asset—one of ten New York cannabis licenses issued by

DOH and then owned by Fiorello. In fact, Fiorello’s principal authority arguing against

replacement costs concedes that in cases where a contract is accompanied by the right to enjoy

“licenses and permits that did not have a market value and were not replaceable,” lost profits are

“the best measure of the loss.” Sharma, 916 F.2d at 826 (discussing Greasy Spoon, Inc. v.

Jefferson Towers, Inc., 75 N.Y.2d 792, 795-96 (1990), which concluded that lost profits were

recoverable for defendant’s conduct that frustrated acquisition and enjoyment of license).

Second, and as an extension of “first,” Fiorello’s authorities use the date of breach in

their damages calculation based on the assumption that on the date of the breach, a party can

immediately complete a mitigating transaction to cover its losses, because there is an open

market and it requires only a short period of time to acquire replacement stocks or a widely

available commodity. But in the M&A context, it is impossible to complete a transaction within

a single day, and often impossible even within a single year; it takes considerable time to

negotiate all terms of a transaction and complete the steps required to close, assuming there is

even an alternative counterparty who is available and willing to enter into those negotiations.

For these reasons, what Fiorello claims is a “rule” for calculating contract damages is not

and cannot be applied universally. There are numerous New York breach of contract cases

permitting damages awards that do not rely on the market price on the date of the breach. For

example, in Dorchester Pub. Co. v. Lanier, No. 01 CIV. 8792, 2006 WL 4388035, at *18-19

(S.D.N.Y. Mar. 19, 2006), which involved breach of a contract to deliver a book to a publisher,

16 of 22

Case Info

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Andrew Borrok Track Judge’s New Case

Case No.

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Document Filed Date

January 14, 2022

Case Filing Date

May 11, 2018

County

Parties

AKIN GUMP STRAUSS HAUER & FELD LLP Attorney for the Defendant
ASCHER, STEPHEN L Attorney for the Plaintiff
BALDINI, STEPHEN M Attorney for the Defendant
CRESCO LABS LLC, an Illinois limited liability company Plaintiff
Cresco Labs New York, LLC, a New York limited liability company Plaintiff
Eric Sirota Defendant
FEDORNAK, MELISSA TAKARA Attorney for the Plaintiff
FELDMAN, STEPHANIE R Attorney for the Defendant
Fiorello Pharmaceuticals, Inc., a New York corporation Defendant
HIPP, JASON PORTWOOD Attorney for the Plaintiff
IZOWER-FADDE, RACHEL LOIS Attorney for the Defendant
IZOWER-FADDE, RACHEL LOIS Attorney for the Defendants
Izower Feldman, LLP Attorney for the Defendant
IZOWER LEFTON, LLP Attorney for the Defendant
JOHN DOES 1 - 10 Defendant
LEFTON, RONALD DANIEL Attorney for the Defendant
MARKOU, POPPY ELIZABETH Attorney for the Defendant
MARKOU, POPPY ELIZABETH Attorney for the Defendants
Re, John C. Attorney for the Plaintiff
Susan Yoss Defendant
VILLASANA, DENNIS MICHAEL Attorney for the Defendant
BENJAMIN RAH Attorneys for Plaintiffs
FRED WEINSTEIN Attorneys for Plaintiffs
JEROME LEVY Attorney
RICHARD ZAHNLEUTER Attorney
ARIELLE KANE Attorney
MICHAEL HELSEL Attorney
JOSEPH LUCOSKY Attorney
Jason P.Hipp Attorney
KATHERINE LIU Attorney
HOWARD GODNICK Attorneys for Defendants
DINA WEINSTEIN Attorney
DAVID WEINSTEIN Attorney
HAROLD RICHMAN Attorney
KATHERINE LEE Attorney
JASON RIEGERT Attorney
Michael Bass Attorney
NANCY RICHMAN Attorneys for Plaintiffs
MICHAEL BASS Attorney
LYNN SHAFRAN Attorney
JOSEPH HEPPT Attorney
MARK CASH Attorney
ERICA HOLLAND Attorneys for Defendants

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Motion-Secondary: Cresco Labs New York, Llc, a New York limited liability company, Cresco Labs Llc, An Illinois Limited Liability Company v. Fiorello Pharmaceuticals, Inc., a New York corporation, Eric Sirota, Susan Yoss, John Does 1 - 10

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