Motion for Summary Adjudication in 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

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 :
LABS, LLC, an Illinois limited liability : Index No. 652343/2018
company, :
: Hon. Andrew Borrok
:
Plaintiffs/Counterclaim Defendants, : Mot. Seq. No. __
:
v. : ORAL ARGUMENT REQUESTED
:
:
FIORELLO PHARMACEUTICALS, INC., a :
New York corporation, :
:
Defendant/Counterclaimant.

----------------------------------------------------------- X

PLAINTIFFS’ MEMORANDUM OF LAW IN SUPPORT OF
PLAINTIFFS’ CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT

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TABLE OF CONTENTS

PRELIMINARY STATEMENT .................................................................................................... 1
STATEMENT OF FACTS ............................................................................................................. 3
A. Cresco and Fiorello Entered into the LOI ........................................................................ 3
B. Cresco Performed Its Obligations Under the LOI ............................................................ 4
1. Good Faith Payment ..................................................................................................... 4
2. Good Faith Negotiation of Definitive Agreement ........................................................ 5
3. Due Diligence ............................................................................................................... 6
4. Management Oversight Agreement .............................................................................. 7
5. Funding ......................................................................................................................... 7
6. Confidentiality .............................................................................................................. 8
C. Fiorello Suffered No Injury from Any Purported Breach ................................................ 9
D. The Instant Litigation ..................................................................................................... 10
1. The Motion To Dismiss .............................................................................................. 10
2. Fiorello’s Affirmative Defenses and Counterclaims .................................................. 10
3. Summary Judgment .................................................................................................... 11
ARGUMENT ................................................................................................................................ 11
I. Fiorello’s Fifth, Sixth, and Seventh Affirmative Defenses Should Be Dismissed ............ 11
A. The Fifth Affirmative Defense Should be Dismissed Because Cresco Materially
Performed Its Obligations Under the LOI ............................................................................ 12
B. The Sixth Affirmative Defense of Setoff Should be Dismissed Because Fiorello Has
No Damages .......................................................................................................................... 16
C. The Seventh Affirmative Defense of Unclean Hands Should be Dismissed ............. 17
II. Fiorello’s Second, Third, and Fourth Counterclaims Should be Dismissed .................. 18
A. Cresco Did Not Breach the LOI ................................................................................. 19
B. Fiorello Has No Damages........................................................................................... 19
CONCLUSION ............................................................................................................................. 19

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TABLE OF AUTHORITIES

Page(s)

Cases

Beagle Devs., LLC v. Long Island Beagle Club No. II, Inc.,
63 A.D.3d 607 (1st Dep’t 2009) ..............................................................................................19

Camadeo v. Leeds,
290 A.D.2d 355 (1st Dep’t 2002) ............................................................................................18

In re Corp. Res. Servs., Inc.,
564 B.R. 196 (Bankr. S.D.N.Y. 2017) .....................................................................................17

Digital Broad. Corp. v. Ladenburg, Thalmann & Co.,
63 A.D.3d 647 (1st Dep’t 2009) ..............................................................................................19

Evolution Markets, Inc. v. Alpental Energy Partners, LLC,
221 F. Supp. 3d 361 (S.D.N.Y. 2016)............................................................................2, 12, 13

Frank Felix Assocs., Ltd. v. Austin Drugs, Inc.,
111 F.3d 284 (2d Cir. 1997).....................................................................................................11

Graham Constr. & Maint. Corp. v. Vill. of Gouverneur,
229 A.D.2d 815 (3d Dep’t 1996) .............................................................................................13

Kopsidas v. Krokos,
294 A.D.2d 406 (2d Dep’t 2002) .............................................................................................18

Kuhbier v. McCartney, Verrino & Rosenberry Vested Producer Plan,
239 F. Supp. 3d 710 (S.D.N.Y. 2017)......................................................................................12

L-7 Designs, Inc. v. Old Navy, LLC,
647 F.3d 419 (2d Cir. 2011)...............................................................................................14, 15

Lodge II Hotel LLC v. Joso Realty LLC,
155 A.D.3d 1631 (4th Dep’t 2017) ..........................................................................................14

Manshion Joho Ctr. Co. v. Manshion Joho Ctr., Inc.,
24 A.D.3d 189 (1st Dep’t 2005) ........................................................................................17, 18

Miller v. Wells Fargo Bank, N.A.,
994 F. Supp. 2d 542 (S.D.N.Y. 2014)......................................................................................12

New Haven Properties Ltd. v. Grinberg,
293 A.D.2d 386, 741 N.Y.S.2d 206 (1st Dep’t 2002) .............................................................17

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Pirozzolo v. Dimeo,
141 A.D.2d 810 (2d Dep’t 1988) .............................................................................................12

Qualcomm Inc. v. Texas Instruments Inc.,
875 A.2d 626 (Del. 2005) ........................................................................................................13

Refinemet Int'l Co. v. Eastbourne N.V.,
815 F. Supp. 738 (S.D.N.Y. 1993), aff’d, 25 F.3d 105 (2d Cir. 1994) ....................................13

Reif v. Nagy,
175 A.D.3d 107 (1st Dep’t 2019) ............................................................................................18

Robert Cohn Assocs., Inc. v. Kosich,
63 A.D.3d 1388 (3d Dep’t 2009) .............................................................................................15

Spodek v. Park Prop. Dev. Assocs.,
263 A.D.2d 478, 693 N.Y.S.2d 199 (2d Dep’t 1999) ..............................................................16

USI Ins. Servs. LLC v. Miner,
801 F. Supp. 2d 175 (S.D.N.Y. 2011)..................................................................................2, 13

Vega v. Restani Constr. Corp.,
18 N.Y.3d 499 (2012) ................................................................................................................3

Vitro S.A.B. de C.V. v. Aurelius Capital Mgmt., L.P.,
99 A.D.3d 564 (1st Dep’t 2012) ..............................................................................................13

Welch v. DiBlasi,
289 A.D.2d 964 (4th Dep’t 2001) ............................................................................................18

Westinghouse Credit Corp. v. D’Urso,
278 F.3d 138 (2d Cir. 2002).....................................................................................................16

Other Authorities

CPLR § 3212(b) .............................................................................................................................12

iii

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PRELIMINARY STATEMENT

As described in Cresco’s Opposition to Fiorello’s Motion for Summary Judgment, which

is being served in conjunction with this Cross-Motion for Partial Summary Judgment, Fiorello

brazenly breached the No-Shop Provision in an “Equity Purchase Agreement Letter of Intent”

(the “LOI”) with Cresco by negotiating acquisition proposals with three buyers during the 30-

day exclusivity period in the LOI. Once Fiorello had established that two other buyers were

willing to pay more than the base price in the LOI, Fiorello slow-walked negotiation of a

definitive agreement with Cresco until it purported to expire. Fiorello ultimately sold itself to

one of the operators with which it had engaged in prohibited discussions, for much more than the

price in the LOI. To excuse its breach, Fiorello then concocted a false narrative that Cresco

breached the LOI first.

This Cross-Motion for Summary Judgment moves to dismiss certain of Fiorello’s

affirmative defenses and counterclaims which are predicated on that false narrative. In fact, the

evidence is undisputed that Cresco materially performed its obligations under the LOI:

 Fiorello contends that Cresco breached its obligation to negotiate the definitive

agreement in good faith because certain aspects of the negotiation proceeded

slowly. But the evidence is undisputed that Cresco paid the $500,000 good-faith

payment only two weeks after the parties executed the LOI, and that much of the

brief delay was attributable to negotiations over a suitable escrow arrangement.

Similarly, the undisputed evidence is that Cresco earnestly pursued negotiations

in good faith, providing multiple drafts of the definitive agreement and ancillary

deal documents in the first weeks after the LOI had been executed, and

dispatching its CEO and President from Illinois to New York to discuss the draft

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deal documents with Fiorello in person. Cresco did not materially breach the LOI

by failing to negotiate in good faith.

 There is no evidence that Cresco disclosed the terms of the LOI in violation of the

confidentiality clause. Cresco never disclosed Fiorello’s identity or any other

material term of the LOI. Fiorello relies primarily on testimony from Cresco’s

CEO that, at most, some knowledgeable parties could have inferred Fiorello’s

identity from vague disclosures by Cresco that it had a contract to enter the New

York market. That is not a breach, let alone a material breach.

 The evidence also contradicts Fiorello’s contention that Cresco breached the LOI

by failing to have sufficient funds to close the transaction. Cresco had enough

money on hand to make the initial payment set forth in the LOI, and it had access

to, and a proven ability to raise, the necessary funds to make the future payments

contemplated by the LOI.

Second, even if there was a technical breach, any breach was so insubstantial as to

require dismissal of Fiorello’s affirmative defenses. None of the claimed breaches defeated the

purpose of the LOI. See, e.g., USI Ins. Servs. LLC v. Miner, 801 F. Supp. 2d 175, 185 (S.D.N.Y.

2011) (party who made late payments could still enforce agreement); Evolution Markets, Inc. v.

Alpental Energy Partners, LLC, 221 F. Supp. 3d 361, 371 (S.D.N.Y. 2016) (granting plaintiff’s

motion for summary judgment on breach of contract claim even though defendant alleged as an

affirmative defense that plaintiff breached the confidentiality clause, where defendant could not

prove it suffered damages from plaintiff’s breach).

By the same token, since none of the alleged breaches caused Fiorello any damages, the

counterclaims should be dismissed. This case concerns a willful breach of the No-Shop

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Provision; Fiorello should not be able to distract the jury by making baseless accusations that

Cresco violated the LOI in immaterial respects. Dismissing these affirmative defenses and

counterclaims before trial will permit the Court and the jury to focus on the only issues that are

genuinely in dispute.

At a minimum, Fiorello is not entitled to summary judgment on these issues, as it

contends in its motion for summary judgment, because there are genuine issues of material fact

about Cresco’s performance precluding Fiorello’s motion for summary judgment. Vega v.

Restani Constr. Corp., 18 N.Y.3d 499, 503 (2012). To avoid duplication between the briefs on

the parties’ motion and cross-motion, this memorandum of law is intended to respond to

Fiorello’s five-sentence argument on those issues in addition to supporting Cresco’s cross-

motion. See Mem. of Law in Support of Def.’s Mot. for Summary Judgment or, in the

Alternative, to Limit Pl.’s Damages as a Matter of Law at 15.

STATEMENT OF FACTS

A. Cresco and Fiorello Entered into the LOI

In February 2018, the parties executed the LOI for Cresco to acquire 100% of the

outstanding shares of Fiorello. Affirmation of Jason P. Hipp in Support of Plaintiffs’ Cross-

Motion for Summary Judgment (“Hipp Aff.”) ¶ 8. The parties agreed that Cresco would pay at

least $22.5 million in total consideration, with the first $10 million due on closing, and $6.25

million due each of the following two years. Ex. 13.

As relevant to this motion, the LOI included the following obligations:

 Cresco shall make a $500,000 good faith payment “upon execution” of the LOI. Id. at 3.

 “Promptly following the execution of this LOI,” the parties were obligated to work in

good faith to complete due diligence and execute a definitive agreement consistent with

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the terms of the LOI. Id. at 4. The Parties further agreed that they would “endeavor to

execute the Definitive Agreement as soon as practicable,” subject to the necessary

approvals. Id. at 3

 The Parties “shall enter into a Management Oversight Agreement” that “shall be

negotiated in good faith between the Parties and entered into as soon as practicable.” Id.

 Cresco acknowledged that it “currently has, and will represent and warrant in the

Definitive Agreement that it has, adequate funding to make each and all installments of

the Funding Amount as each comes due, in accordance with the Definitive Agreement.”

Id.

 The parties agreed to a confidentiality provision under which the LOI would not be

disclosed to “customers, suppliers, employees or other persons without the consent of

both Parties.” Id. at 5.

B. Cresco Performed Its Obligations Under the LOI

Contrary to Fiorello’s claims, Cresco performed its obligations under the LOI to make a

good faith payment, work with Fiorello in good faith to prepare definitive agreements, provide a

due diligence list and complete its due diligence review promptly, negotiate a management

oversight agreement, obtain sufficient funding to meet its obligations under the Agreement, and

comply with its confidentiality obligations.

1. Good Faith Payment

Cresco timely made the $500,000 good faith payment within two weeks of executing the

LOI, well before its earliest expiration date. Hipp Aff. ¶ 14. Cresco spent the six business days

between when Fiorello requested payment and when Cresco made payment working to arrange

for and negotiate an escrow agreement. Ex. 15. Fiorello claims Cresco “unilaterally impos[ed]

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an escrow requirement,” Ex. 12 ¶ 39.a, but use of an escrow for a good faith payment is

“customary in a transaction of this size and scope.” Ex. 2 at 60.

2. Good Faith Negotiation of Definitive Agreement

Cresco negotiated the definitive agreement with Fiorello in good faith and in a timely

manner.

First, Cresco dedicated significant resources to negotiating the deal and moving to

closing expeditiously. Cresco’s CEO directly participated as the lead negotiator, demonstrating

the importance of the deal to Cresco. Ex. 1 at 83:6-12. Cresco also retained an eight-member

outside counsel team with dedicated specialists to address the range of issues necessary to close

the deal. Ex. 4 at 39:10-41:17, 43:10-44:22.

Second, Fiorello complains of delays in advancing the draft documents. But Cresco

timely provided multiple drafts of the definitive agreement to Fiorello, and Cresco’s CEO and

President met with Fiorello in person to discuss the draft. Hipp Aff. On March 1, 2018, Cresco

provided a first draft of the definitive agreement to Fiorello; on March 2, Cresco’s CEO and

President traveled to New York to discuss the draft in person with Sirota and Yoss and

volunteered to turn the next draft addressing their feedback; and by March 8, Cresco had

circulated a new draft. Hipp Aff. ¶ 22; Ex. 17 (Cresco’s March 1 draft); Ex. 19 (Cresco’s March

8 draft); Ex. 1 at 229:24-231:10.

Fiorello—which had at that point received a higher offer from another party—then sat on

its hands. Despite persistent follow-up from Cresco beginning March 13, Fiorello did not

provide written feedback until March 26, days before the end of the exclusivity period, and that

belated feedback was not provided in good faith, reflecting proposed new terms that materially

departed from the LOI. Hipp Aff. ¶ 27. Cresco’s outside counsel testified that “the speed at

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which [Fiorello was] moving was not reflective of . . . a desire to [] complete – or an expectation

to complete the documents.” Ex. 4 at 266:13-267:14.

Finally, Fiorello complains that material terms of the definitive agreement remained open

at the end of the exclusivity period, but that was only because of Fiorello’s delays. For example,

Fiorello claims that tax structuring issues had not been resolved, but even though Cresco made

repeated attempts to connect with Fiorello’s tax counsel throughout the exclusivity period, no

such call occurred. Ex. 24 ¶ 44; Ex. 4 at 148:22-149:2, 267:25-269:4.

3. Due Diligence

Cresco worked in good faith to complete its due diligence review, completing the

majority of its review during the prescribed exclusivity period, and could not completely

conclude its review solely because of Fiorello’s delays and failure to provide relevant

information.

Cresco made its initial due diligence requests on March 1. Ex. 17. Despite Cresco’s

repeated follow-up requests, Fiorello delayed more than one week before even beginning to

produce responsive materials, first providing access to any Fiorello information on Friday,

March 9. Hipp Aff; Ex. 27. Cresco’s CEO and other personnel, along with its outside counsel

team, worked diligently to review the materials Fiorello had provided. Hipp Aff. ¶ 40. By

March 15, Cresco had completed a substantial portion of its review, and on March 19, Cresco

sent Fiorello a list of due diligence items that remained outstanding. Id. ¶¶ 40, 41; Ex. 28; Ex.

29. Nonetheless, by the end of the exclusivity period, Fiorello still had not provided all of the

material Cresco had requested, including material originally requested on March 1. Hipp Aff.

¶¶ 42-43.

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4. Management Oversight Agreement

The LOI required both parties to negotiate in good faith a Management Oversight

Agreement and enter into such an agreement “as soon as practicable.” Ex. 13 at 3. That

agreement was intended to lay out the terms under which Cresco would “oversee the

management and operations of Fiorello” upon execution of the LOI. Id. But it was Fiorello, not

Cresco, that prevented negotiation of this agreement. Contrary to the LOI’s terms, Fiorello did

not want Cresco to take operational control until after execution of the definitive agreement and

as a result did not pursue this agreement. Ex. 1 at 214:19-215:12. Fiorello also claimed that it

wanted to focus on the definitive agreement before negotiating ancillary deal documents—

although as noted above, Fiorello delayed work even on that contract. Hipp Aff. ¶ 45; supra at

5-6. Fiorello claims it made “repeated requests” for the management oversight agreement, but

offers no evidence that it ever made any requests to Cresco about this agreement after February

18 (three days after execution of the LOI). See Ex. 11 ¶ 105; Ex. 12 ¶ 41.

5. Funding

Fiorello claims that Cresco did not have adequate funding to make the payments due

under the LOI. Ex. 12 ¶¶ 48-51. Cresco in fact made the only payment that came due (the good

faith payment) and was prepared to make all future payments when due.

Cresco had well more than $9.5 million set aside to make the remaining portion of the

initial payment due at closing. Ex. 2 at 128:3-16; see also Ex. 31 (Feb. 28, 2018 bank statement

showing balance over $15 million). Cresco was actively raising capital in March and April

2018, and it knew, based on its prior performance, that it would raise additional capital to make

payments in future years. Ex. 2 at 139:11-22, 141:13-19; Ex. 1 at 299:3-10. By early April

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2018, Cresco had received commitments of more than $10 million from its ongoing fundraising.

Ex. 33.

In any event, as described in Cresco’s opposition to Fiorello’s motion for summary

judgment, Cresco ultimately closed on the incomparably more expensive transaction to purchase

Valley, demonstrating that Fiorello’s argument is unfounded.

6. Confidentiality

Cresco also complied with its obligations under the confidentiality provision.

Cresco’s investment deck stated only that it had a letter of intent with an unnamed NY

cannabis company. Hipp Aff. ¶ 55. Cresco was careful not to disclose the identity of its

counterparty in its investment deck and did not do so. Moreover, Fiorello was aware of all of

Cresco’s disclosures in the deck. Id. ¶ 56; Ex. 1 at 133.

Fiorello relies on testimony from Cresco’s CEO acknowledging that an early version of

Cresco’s investment deck “would have been identifying who or what was involved in an LOI

with us,” even though it did not name Fiorello, because there were a limited number of potential

targets in New York State. Ex. 12 ¶ 57. However, Bachtell promptly had the potentially

identifying information removed from the deck at Yoss’s request. Ex. 2 at 113-14. And, despite

receiving the most detailed version of Cresco’s investment deck, knowledgeable industry

insiders at Liberty Health Sciences still were not able to identify the counterparty for Cresco’s

NY deal. Ex. 10 at 48; Ex. 9 at 52; Ex. 38. See also Hipp Aff. ¶ 58.

Fiorello’s alleged concerns about confidentiality arose only after Fiorello began to pursue

the higher offers they obtained during the exclusivity period. In addition to the investor deck,

Fiorello relies on an April 2018 industry publication where Bachtell stated that Cresco was

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acquiring a New York company. But that publication did not identify Fiorello or disclose any

LOI terms. Ex. 39.

Fiorello also contends that Cresco breached the confidentiality provision when a Cresco

officer provided a draft of the LOI to Jonathan Canarick, the co-manager of one of Fiorello’s

preferred shareholders. Ex. 12 ¶ 63. But Canarick testified that he was already aware of the

Cresco LOI and that Yoss had disclosed the terms to him prior to receiving any information from

Cresco. Ex. 7 at 30:2-31:23.

C. Fiorello Suffered No Injury from Any Purported Breach

Fiorello suffered no injury from any purported breach by Cresco of the LOI. At his

deposition, Fiorello’s co-CEO Sirota was given four opportunities to explain how Cresco’s

alleged breaches had harmed Fiorello, but he was not able to articulate any harm. Ex. 5 at

234:25-237:5. Sirota could only speculate about hypotheticals: Cresco’s confidentiality breach

“would potentially injure our ability to seek financing” and that “it injured us in the regard that

we were going to be going out, if we didn’t reach a deal, to finance the company.” Id. at 236:2-

4, 16-21 (emphasis added); see also Ex. 12 ¶¶ 36-63 (Fiorello’s counsel’s testimony about

Cresco’s breach with no testimony about injury to Fiorello). Sirota’s failure to identify any

actual injury is consistent with Fiorello’s pleading, which alleged that it suffered only

hypothetical injury in the form of “litigation overhang which thereby chilled the market and

reduced opportunities for Fiorello and its shareholders” to complete an alternative M&A

transaction. Ex. 11 ¶ 152.

In actuality, within months of the alleged breaches, Fiorello consummated a more

lucrative transaction to be acquired by GTI and obtained sufficient financing to support

Fiorello’s operations. Ex. 42 (June 29, 2018 merger agreement between GTI and Fiorello); Ex.

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43 at 2 (Aug. 30, 2018 representation by Fiorello’s counsel that it had obtained a commitment for

“$15-$20 million to support NY operations”).

D. The Instant Litigation

1. The Motion To Dismiss

On June 26, 2018, Cresco filed its initial complaint. Dkt. 8. On November 20, 2018,

Cresco filed the Amended Complaint, which included a claim against Fiorello for breach of the

No-Shop Provision and a claim against Fiorello for breach of the commitment in the LOI for

Fiorello to sell itself to Cresco. Dkt. 60. On October 15, 2019, this Court issued an amended

decision and order denying Defendants’ motion to dismiss the claim for breach of the No-Shop

Provision. Dkt. 142 at 7.

2. Fiorello’s Affirmative Defenses and Counterclaims

On June 6, 2019, Fiorello filed an Answer and Counterclaims. Ex. 11. The Answer

included three affirmative defenses relevant to this motion:

 Fifth Affirmative Defense: “Plaintiffs failed to perform their obligations under the LOI.”

Id. ¶ 69.

 Sixth Affirmative Defense: “Any damages which Plaintiffs might be awarded, should be

set off by amounts for which Plaintiffs are liable to Defendant, including but not limited

to the amount of the good faith payment which Plaintiffs have forfeited by reason of their

failure to perform and numerous breaches of their obligation under the LOI.” Id. ¶ 69.

 Seventh Affirmative Defense: “Plaintiffs are barred from equitable relief by their own

unclean hands.” Id. ¶ 71.

Fiorello also alleged four counterclaims:

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The First Counterclaim seeks declaratory relief that Fiorello is entitled to keep the

$500,000 good faith payment because of Cresco’s purported delays with due diligence and

drafting the definitive agreement. Id. ¶¶ 125-131.

The Second Counterclaim alleges that Cresco breached various scattered provisions of

the LOI, including, for example, by failing to negotiate in good faith, failing to provide a due

diligence request list upon execution of the LOI, and failing to provide Fiorello with various

draft documents. Id. ¶¶ 132-43.

The Third and Fourth Counterclaims allege that Cresco breached the confidentiality

provision of the LOI and seek related injunctive relief. Id. ¶¶ 144-58.

3. Summary Judgment

On July 2, 2021, Fiorello filed a notice of motion of summary judgment on Cresco’s

claim for breach of the No-Shop Provision. Fiorello’s motion seeks to dismiss the claim for

breach of the No-Shop Provision on the ground that Cresco itself breached the LOI, thereby

raising the identical issues as certain of their affirmative defenses and counterclaims. Br. at 15

(“Cresco Cannot Recover Because it Breached the LOI”).

On September 24, 2021, Cresco filed a notice of cross-motion for summary judgment so

that the Court can resolve the same issues at the same time.

ARGUMENT

I. Fiorello’s Fifth, Sixth, and Seventh Affirmative Defenses Should Be Dismissed

Under New York law, “[a] party’s obligation to perform under a contract is only excused

where the other party’s breach of the contract is so substantial that it defeats the object of the

parties in making the contract.” Frank Felix Assocs., Ltd. v. Austin Drugs, Inc., 111 F.3d 284,

289 (2d Cir. 1997). Thus, one party’s non-compliance with a minor provision of a contract does

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not permit the other party to fundamentally breach the contract. See, e.g., Kuhbier v. McCartney,

Verrino & Rosenberry Vested Producer Plan, 239 F. Supp. 3d 710, 736 (S.D.N.Y. 2017)

(employee’s breaches of employment contract did not excuse defendants’ nonperformance);

Miller v. Wells Fargo Bank, N.A., 994 F. Supp. 2d 542, 553 (S.D.N.Y. 2014) (plaintiff who

failed to maintain insurance as required by mortgage could still enforce agreement). Similarly, a

minor or technical breach of a material provision of a contract, including a breach that causes the

party no injury, will not allow it to avoid the consequences of its more fundamental breach.

Evolution Markets, 221 F. Supp. 3d at 371 (granting plaintiff’s motion for summary judgment on

breach of contract claim, even though defendant alleged that plaintiff breached a clause of the

contract, where defendant could not prove it suffered damages from plaintiff’s breach).

Each of Fiorello’s Fifth, Sixth, and Seventh Affirmative Defenses should be dismissed

because Fiorello cannot prove that Cresco breached the LOI in a manner that was so substantial

as to defeat the object of the LOI. CPLR § 3212(b); Pirozzolo v. Dimeo, 141 A.D.2d 810, 811

(2d Dep’t 1988) (affirming dismissal of affirmative defenses where party “fail[ed] to raise any

genuine triable issues of fact”). Fiorello should not be entitled to frustrate Cresco’s enforcement

of the No-Shop Provision and to confuse the jury by pursuing these non-meritorious affirmative

defenses at trial.

A. The Fifth Affirmative Defense that Cresco Did Not Perform its Obligations
Under the LOI

Cresco did not breach the LOI in any of the areas identified by Fiorello. Even if the

Court concludes that there was a technical breach of the LOI, any such breach cannot be used to

excuse Fiorello’s breach of the No-Shop Provision. Accordingly, the Fifth Affirmative Defense

should be dismissed.

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FILED: NEW YORK COUNTY CLERK 01/19/2022 06:23 PM INDEX NO. 652343/2018
NYSCEF DOC. NO. 558 RECEIVED NYSCEF: 01/19/2022

Confidentiality. Fiorello does not contend that any material terms of the LOI, such as

Fiorello’s identity, were disclosed, and none of Cresco’s alleged disclosures constitute a breach

of the LOI’s confidentiality provision. At most, Cresco disclosed information from which a

knowledgeable reader could have deduced Fiorello’s identity. These generic disclosures,

without disclosing “any specific confidential terms,” do not constitute a breach of confidentiality.

Vitro S.A.B. de C.V. v. Aurelius Capital Mgmt., L.P., 99 A.D.3d 564, 565 (1st Dep’t 2012) (a

disclosure that “did not disclose any specific confidential terms” was not a breach of

confidentiality).

Even if the Court concluded that any of Cresco’s disclosures was a breach, the

disclosures were not so substantial so as to defeat the purpose of the contract and excuse

Fiorello’s more serious breach, particularly because the harm that Fiorello allegedly feared (loss

of an alternative purchaser) did not come to pass. See Qualcomm Inc. v. Texas Instruments Inc.,

875 A.2d 626, 630 (Del. 2005) (the preservation of confidentiality was ancillary to the principal

purpose of the contract, an IP agreement permitting two companies to use each other’s patent

portfolios); Evolution Markets, 221 F. Supp. 3d at 371.

Good Faith Payment. The two-week delay in making the good faith payment was not a

breach and was immaterial given that Fiorello had the money more than four weeks before the

end of the exclusivity period. Hipp Aff. ¶ 14; Graham Constr. & Maint. Corp. v. Vill. of

Gouverneur, 229 A.D.2d 815, 819 (3d Dep’t 1996) (“brief” three week delay in making payment

was not a material breach); USI, 801 F. Supp. 2d at 185 (party who made late payments could

still enforce agreement).

It would be a different story if Cresco had never made the good faith payment. See

Refinemet Int'l Co. v. Eastbourne N.V., 815 F. Supp. 738, 742 (S.D.N.Y. 1993), aff’d, 25 F.3d

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FILED: NE

Case Info

Judge

Andrew Borrok Track Judge’s New Case

Case No.

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Document Filed Date

January 19, 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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