Motion for Summary Judgment 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. 11
:
v. : ORAL ARGUMENT REQUESTED
:
:
FIORELLO PHARMACEUTICALS, INC., a :
New York corporation, :
:
Defendant/Counterclaimant.

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

PLAINTIFFS’ MEMORANDUM OF LAW IN OPPOSITION TO
DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

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TABLE OF CONTENTS

PRELIMINARY STATEMENT .................................................................................................... 1
STATEMENT OF FACTS ............................................................................................................. 3
A. Cresco’s Plan to Acquire a NY-Licensed Company Before Going Public ...................... 3
B. Cresco and Fiorello Entered into the LOI ........................................................................ 4
C. The No-Shop Provision .................................................................................................... 4
D. Fiorello Immediately and Repeatedly Breached the No-Shop Provision ........................ 5
1. Liberty .......................................................................................................................... 5
2. Sea Hunter .................................................................................................................... 6
3. GTI................................................................................................................................ 6
4. Sirota and Yoss’s Implausible Denials ......................................................................... 7
E. After Obtaining Higher Offers, Fiorello Stalled the Deal with Cresco ............................ 7
F. Fiorello’s New Deal Closed ............................................................................................. 8
G. Cresco Entered into a Replacement Transaction.............................................................. 8
I. Expert Discovery ................................................................................................................. 9
J. Fiorello’s Refusal to Participate in Discovery Following Cresco’s Opposition ................ 10
ARGUMENT ................................................................................................................................ 11
I. Fiorello Breached the No-Shop Provision ......................................................................... 11
II. Fiorello’s Breach Caused Damages to Cresco ............................................................... 12
A. It Is Premature and Inefficient to Limit Cresco’s Damages Now .............................. 12
B. Replacement Cost Damages ....................................................................................... 12
C. Disgorgement Damages .............................................................................................. 15
D. DOH Would Have Approved the Deal ....................................................................... 16
E. The Requirement of Shareholder Approval Does Not Prevent Cresco From Proving
Damages ................................................................................................................................ 18
F. Cresco Is Not Limited As a Matter of Law to Reliance Damages ............................. 19
CONCLUSION ............................................................................................................................. 23

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TABLE OF AUTHORITIES

Page(s)

Cases

In re 131 Liquidating Corp.,
44 F. Supp. 2d 552 (S.D.N.Y. 1999)........................................................................................21

180 Water St. Assocs., L.P. v. Lehman Bros. Holdings,
7 A.D.3d 316 (1st Dep’t 2004) ................................................................................................23

Ashland Mgmt. Inc. v. Janien,
82 N.Y.2d 395 (1993) ..............................................................................................................13

Bi-Econ Mkt. v. Harleysville Ins. Co.,
10 N.Y.3d 187 (2008) ..............................................................................................................17

Carco Group, Inc. v. Maconachy,
718 F.3d 72 (2d Cir. 2013).......................................................................................................16

Cerberus Capital Mgmt., L.P. v. Snelling & Snelling, Inc.,
No. 60045/2005, 12 Misc. 3d 1187(A), (Sup. Ct. N.Y. Cnty. 2005) .....................13, 14, 18, 21

Dorchester Publishing Co. v. Lanier,
2006 WL 4388035 (S.D.N.Y. Mar. 19, 2006) .........................................................................15

Fairbrook Leasing, Inc. v. Mesaba Aviation, Inc.,
519 F.3d 421 (8th Cir. 2008) ...................................................................................................22

Ficus Investments, Inc. v. Private Capital Mgmt., LLC,
61 A.D.3d 1 (1st Dep’t 2009) ..................................................................................................13

Frank Felix Assocs., Ltd. v. Austin Drugs, Inc.,
111 F.3d 284 (2d Cir. 1997).....................................................................................................12

Freund v. Washington Square Press,
34 N.Y.2d 379 (1974) ..............................................................................................................13

Genuine Parts Co. v. Essendant Inc.,
2019 WL 4257160 (Del. Ch. Sept. 9, 2019) ............................................................................11

Gomez v. Bicknell,
302 A.D.2d 107 (2d Dep’t 2002) .............................................................................................16

Goodstein. Columbia Park Golf Course, Inc. v. City of Kennewick,
248 P.3d 1067 (Wash. App. 2011)...........................................................................................22

iii

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Goodstein Const. Corp. v. City of New York,
145 Misc.2d 870 (Sup. Ct. N.Y. Cnty. 1989) ..........................................................................20

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

Jenkins v. T.S.I. Holdings, Inc.,
1 P.3d 891 (Kan. 2000) ............................................................................................................13

Kenford Co. v. Erie Cty.,
73 N.Y.2d 312 (1989) ........................................................................................................13, 14

In re Kenneth Cole Prods., Inc.,
27 N.Y.3d 268 (2016) ..............................................................................................................13

NACCO Indus., Inc. v. Applica Inc.,
997 A.2d 1 (Del. Ch. 2009).............................................................................................. passim

Network Enterprises, Inc. v. APBA Offshore Productions, Inc.,
427 F.Supp.2d 463 (S.D.N.Y. 2006)........................................................................................15

Pesa v. Yoma Dev. Grp. Inc,
18 N.Y.3d 527 (2012) ..............................................................................................................23

In re Primedia, Inc. S’holders Litig.,
67 A.3d 455 (Del. Ch. 2013)....................................................................................................16

PSC Metals, Inc. v. S. Recycling, LLC,
2018 WL 1566822 (M.D. Tenn. Mar. 29, 2018) .....................................................................11

Raven Capital Mgt. LLC v. Georgia Film Fund 72, LLC,
2021 WL 465980 (Sup. Ct. NY. Cnty. 2021) ..........................................................................23

RSB Bedford Assocs., LLC v. Ricky’s Williamsburg, Inc.,
91 A.D.3d 16 (1st Dep’t 2011) ................................................................................................18

Siga Techs., Inc. v. PharmAthene, Inc.,
132 A.3d 1108 (Del. 2015) ......................................................................................................14

Umbach v. Carrington Inv. Partners (US), LP,
851 F.3d 147 (2d Cir. 2017).....................................................................................................14

Wathne Imports, Ltd. v. PRL USA, Inc.,
101 A.D.3d 83 (1st Dep’t 2012) ..............................................................................................14

Wave-Division Holdings LLC v. Millennium Digital Media Systems, L.L.C.,
2010 WL 3706624 (Del. Ch. Sept. 17, 2010) ....................................................................15, 18

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Westerbeke Corp. v. Daihatsu Motor Co.,
304 F.3d 200 (2d Cir. 2002).....................................................................................................21

Worldwide Srvcs., Ltd v. Bombardier Aerospace Corp.,
2015 WL 5671724 (S.D.N.Y. Sept. 22, 2015) .........................................................................15

Xiang Fu He v. Troon Mgmt., Inc.,
34 N.Y.3d 167 (2019) ..............................................................................................................11

Y.J.D. Rest. Supply Co. v. Dib,
98 Misc. 2d 462 (Sup. Ct. N.Y. Cnty. 1979) ...........................................................................16

Other Authorities

Restatement (Third) of Restitution and Unjust Enrichment § 39(1) (2011) ..................................15

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PRELIMINARY STATEMENT

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. In the meantime, Cresco scrupulously abided by its reciprocal obligation

not to discuss a potential transaction with any New York company other than Fiorello. Because

Cresco’s business plan required it to acquire a New York-licensed operator before Cresco went

public on the Canadian Securities Exchange, Cresco then paid three times as much as the price in

the LOI to acquire the only available substitute.

In moving to dismiss Cresco’s claim, Fiorello relies on testimony from its co-CEOs, Eric

Sirota and Susan Yoss, that there was “no discussion of deal terms during the exclusivity

period.” Br. 2. The Court should not accept this implausible testimony, let alone on a motion for

summary judgment. The contemporaneous emails, text messages, and phone records show that

literally the same day Fiorello signed the LOI with Cresco, Sirota spoke with the CEO of a

competing multistate operator (“MSO”). That conversation led to an in-person meeting, text

messages, phone calls, and two written offers.

Also on the same day they signed the LOI, Sirota and Yoss discussed whether they could

engage in discussions with a second MSO. That conversation also led to an in-person meeting

and an NDA stating that the MSO “and Fiorello Pharmaceuticals Inc. desire to discuss a possible

transaction.” Ex. 23, Ex. 25.

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Later in the exclusivity period, Fiorello also engaged in prohibited discussions with the

MSO that ultimately purchased it, Green Thumb Industries (“GTI”). Those discussions included

an outgoing call from Sirota to GTI’s founder, which resulted in GTI transmitting a draft letter of

intent later that same day. In light of this evidence, the Court should not credit Sirota and Yoss’s

preposterous story that their many discussions had nothing to do with a possible acquisition. It is

also noteworthy that Sirota and Yoss created a phony paper trail suggesting their offers were

unsolicited.

Fiorello’s motion seeks an alternative ruling that even if it did breach the No-Shop,

Cresco is not entitled to damages above its out-of-pocket costs to negotiate and diligence the deal

with Fiorello. But numerous courts, in New York and Delaware, have held that damages,

including the plaintiff’s replacement costs, are available when defendants willfully breach no-

shop provisions—including when the provision is reflected in a letter of intent.

Replacement cost damages are particularly appropriate here. When Cresco entered into

the LOI with Fiorello, MSOs like Cresco were in a game of musical chairs with New York

licensees like Fiorello: Cresco was competing with other MSOs to acquire the few New York

licensed companies still available, and Cresco did not want to get shut out or put into a bidding

war for the last available licensee. Because the No-Shop Provision required both parties to forgo

discussions about alternative New York transactions during the exclusivity period, Fiorello’s

breach forced Cresco to pay an extraordinary price for the last available New York licensee.

In its motion, Fiorello argues that Cresco is not entitled to damages because Cresco’s deal

with Fiorello would not have been approved by the New York State Department of Health

(“DOH”). Br. 2. No admissible evidence supports Fiorello’s argument, which is based solely on

its own hearsay. In any event, both Cresco and Fiorello were able to get their subsequent

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transactions approved, despite initial rejections, by working cooperatively with the DOH and

their counterparties. The jury is entitled to conclude that if Fiorello had not breached, Cresco

and Fiorello would have concluded a definitive agreement on terms that are sufficiently definite

to form a “stable foundation” for estimating damages.

Fiorello also argues that after Goodstein Const. Corp. v. City of New York, 80 N.Y.2d 366

(N.Y. 1992), a party can never recover anything more than out-of-pocket damages for breach of

an LOI. But Goodstein does not involve the breach of a No-Shop Provision in which the target

sold itself in a similar transaction for a higher price – precisely the risk Cresco contracted to

avoid. Rather, in Goodstein, the City had an express unilateral right to terminate the agreement

at any time, and it exercised that right to pursue an entirely different development plan than the

one in the agreement with the plaintiff. The developers plainly assumed that risk.

If Fiorello were right that the only damages available for breach of a no-shop provision in

an LOI were out-of-pocket costs, then no target in an M&A transaction would ever abide by one,

because the potential gains from a breach would be hundreds or even thousands of times greater

than the potential liability. Thus, as the Delaware Chancery Court has stated:

Parties bargain for provisions in acquisition agreements because those provisions mean
something. Bidders in particular secure rights under acquisition agreements to protect
themselves against being used as a stalking horse and as consideration for making target-
specific investments of time and resources in particular acquisitions…. It is critical to
our law that those bargained-for rights be enforced, [including, …] in the appropriate
case, through monetary remedies including awards of damages.

NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 19–20 (Del. Ch. 2009).

STATEMENT OF FACTS

A. Cresco’s Plan to Acquire a NY-Licensed Company Before Going Public

Cresco is an MSO. In 2018, in anticipation of becoming a publicly traded company, its

business model depended on building a national footprint within the state medical cannabis

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markets. New York State was essential to this plan, because it is a large market and had issued a

relatively limited number of licenses. Affidavit of Charles Bachtell (“Bachtell_Aff.”) ¶3.

But by the time Cresco negotiated with Fiorello in late 2017, only two licensees were still

available: Defendant Fiorello (ultimately acquired by GTI) and Valley Agriceuticals (“Valley”)

(which Cresco later acquired). Under these circumstances, exclusivity was crucial to ensure

Cresco would not get shut out or put in a bidding war.

B. Cresco and Fiorello Entered into the LOI

On February 14 and 15, 2018, the parties executed the LOI for Cresco to acquire 100% of

the outstanding shares of Fiorello. 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. A.1 Cresco also agreed to an additional payment of up to

$10 million, contingent upon New York legalizing recreational sales of marijuana within four

years. Id. at 2. These financial terms remained consistent through Fiorello’s final draft of the

definitive agreement. Hipp_Aff. ¶22.i.

“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 the

terms of the LOI. The Parties further agreed that they would “endeavor to execute the Definitive

Agreement as soon as practicable,” subject to the necessary approvals. The LOI was “intended

to be binding on the Parties until supplanted by a definitive agreement.” Id.

C. The No-Shop Provision

The LOI includes a mutual No-Shop Provision which provides:

1
References to lettered exhibits, “Br.” and “Sirota_Aff.” refer to the papers submitted by
Fiorello in support of its motion. References to numbered exhibits refer to the exhibits submitted
by Cresco in opposition.

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By executing this LOI, the Parties agree that they will not discuss
or enter into any transaction with any third-party involving (a) the
sale of a majority equity stake in, or all or substantially all of the
assets of, Fiorello or any subsidiary or parent entities of Fiorello,
including without limitation, any sale or other transfer of the
grower and dispensary license used or owned by Fiorello to any
third-party or (b) the purchase of any equity interest in or assets of
another medical marijuana company in the State of New York by
Buyer.

Id. This provision was effective for thirty business days (through March 30, 2018).

Unlike a typical no-shop provision, this No-Shop Provision was mutual, meaning that

while Fiorello was prohibited from engaging in discussions with other potential acquirers,

Cresco was similarly prohibited from engaging in discussions with other potential targets.

During negotiations, Fiorello revised the draft LOI to clarify and expand subsection (b) to restrict

Cresco. Bachtell_Aff. ¶9; Ex. 64.

As a result, entering into the LOI subjected Cresco to more than just the expense of

conducting diligence into Fiorello; Cresco also incurred the risk that while it tried to conclude a

definitive agreement with Fiorello, the market price would go up or the last remaining NY-

licensed company would become unavailable.

D. Fiorello Immediately and Repeatedly Breached the No-Shop Provision

1. Liberty

The same day Sirota executed the LOI, he scheduled a conference call with Yoss and

George Scorsis, CEO of Liberty Health Sciences (“Liberty”), a cannabis company in Florida that

was interested in expanding to New York. Affirmation of Jason P. Hipp in Opposition to

Defendant’s Motion for Summary Judgment (“Hipp_Aff.”) ¶15.a; Ex. 16. The call lasted 25

minutes. Ex. 14. A week later, Sirota and Yoss met in person with Scorsis and Liberty’s CFO.

Ex. 17.

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On March 2, Scorsis texted Sirota, “We are sending you an unsolicited in [the] next 24

hours.” Ex. AA. Twelve minutes later, Sirota called Scorsis, and they spoke for eight minutes.

Ex. 14. Within 24 hours, Scorsis sent Fiorello a proposed letter of intent with a purchase price of

$27.5 million—precisely $5 million more than the price in the LOI. Ex. BB.

After receiving this offer, Yoss and Sirota decided to pursue it. On March 3, Yoss texted

Sirota: “The offer is much better..thinking about how we can consider it...” Ex. 18. Then, on

March 9, Sirota called Scorsis and spoke for four minutes. Ex. 14. Sirota called Scorsis again on

March 12. That call lasted seven minutes. Id. On March 14, Scorsis texted Sirota: “Hey Eric, I

am still thinking about this. Can I call you in 1 hr.” Ex. AA. Scorsis and Sirota had three more

calls that evening.

On March 15, Scorsis emailed his CFO with instructions about how to email Fiorello and

“make it appear as if we have not had discussions.” Ex. 19. The next morning, the CFO sent a

revised proposed letter of intent to Sirota and Yoss. Ex. DD. The revised letter of intent had

similar price terms to the initial offer, but removed the exclusivity provision, presumably at

Fiorello’s request. Hipp_Aff. ¶15.k.

2. Sea Hunter

Two days after executing the LOI, Fiorello requested an in-person meeting with the CEO

of Sea Hunter Holdings, a cannabis company with operations in four states. Id. ¶16.b. Fiorello

then executed an NDA stating that the parties “desire to discuss a possible transaction.” Id.

¶16.d.

3. GTI

On March 14, 2018, GTI’s founder Ben Kovler contacted Sirota and Yoss via email,

requesting a “chat.” Ex. 28. Three days later, Kovler emailed them again. Id. Fiorello knew

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that GTI, with which it had discussed a potential transaction months earlier (Ex. 26), wanted a

“chance” to bid before Fiorello completed a sale. Ex. 27.

On March 20, Sirota placed a telephone call to Kovler, with Yoss also on the line. Ex.

15; Hipp_Aff. ¶18.d. A few minutes later, Kovler called Sirota, and they continued to talk for

another four minutes, while Yoss remained on the line. Id.

After those telephone calls, Kovler instructed GTI’s lawyers to draft an offer to acquire

Fiorello. Ex. 9 at 109. Later that day, Kovler sent a proposed letter of intent to Fiorello with

total consideration of $25 million. Ex. EE. Kovler’s cover email submitting GTI’s offer stated

that “we haven’t spoken in a while,” even though they had spoken that day. Id.

Sirota’s conversations with Kovler led to a flurry of communications among Fiorello

board members, shareholders, and attorneys on March 20 – even before receipt of GTI’s

proposed letter of intent – showing that Fiorello expected to receive an offer as a result of those

conversations. Hipp_Aff. ¶¶18.f-18.g.

4. Sirota and Yoss’s Implausible Denials

The predicate for Fiorello’s motion is Sirota and Yoss’s testimony that they did not

discuss a transaction with GTI, Liberty, or Sea Hunter during the exclusivity period. Br. 16. But

for nearly every phone call or email during the exclusivity period, Sirota and Yoss conveniently

could not remember or explain what had been discussed. Hipp_Aff. ¶¶15.l, 19 (summarizing

implausible testimony).

E. After Obtaining Higher Offers, Fiorello Stalled the Deal with Cresco

After breaching the No-Shop Provision and obtaining higher offers, Fiorello stopped

working in good faith to consummate a transaction with Cresco, and instead ran out the clock

until exclusivity ended. For example, Fiorello provided no written feedback on the draft

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definitive agreement until days before the end of the exclusivity period, and had not completed

responding to Cresco’s initial due diligence requests. Fiorello’s stalling is described in more

detail in the Hipp Affirmation ¶¶21-24.

F. Fiorello’s New Deal Closed

Fiorello purported to terminate the LOI at the end of the exclusivity period. Fiorello

ultimately entered into an agreement to sell its stock to GTI for $42.6 million in cash and 1.7

million shares of GTI. Hipp_Aff. ¶29.

According to Fiorello, DOH originally refused to approve the deal because Fiorello was

not operational and the transaction included a contingent cash payment dependent on New York

legalizing cannabis for recreational purposes. Fiorello and GTI were able to surmount both these

obstacles. Sirota_Aff. ¶53. In lieu of a contingent cash payment, GTI agreed to give Fiorello’s

shareholders substantial equity in GTI—allowing them to share in the upside from legalization.

Ex. 48.

G. Cresco Entered into a Replacement Transaction

Cresco abided by the No-Shop Provision and pursued a replacement transaction only

after it became clear that it could not acquire Fiorello. Bachtell_Aff. ¶11. Cresco ultimately

purchased Valley on October 24, 2018. DOH initially rejected the deal, but as with GTI and

Fiorello, after Cresco supported Valley’s efforts to become operational, DOH approved it. Id.

¶¶16-20. DOH approved the deal even though it included contingent consideration pursuant to

which shareholders would be entitled to Cresco shares worth approximately $23.7 million if New

York legalized recreational sales of cannabis. Ex. 71 § 3.2; Bachtell_Aff. ¶23; Ex. 1 at 324:22-

325:6. DOH was notified that the deal included contingent consideration. Hipp_Aff. ¶36; Ex.

73.

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Cresco’s acquisition closed in October 2019. Cresco acquired Valley for total

consideration of up to $129.6 million (including cash, equity, warrants, and deferred

consideration), about three times as much as the cost to acquire Fiorello. Ex. 53 at 43; Ex. 55 at

CRES00011114. This amount dwarfs the maximum total payment in the LOI ($32.5 million).

At the time, Valley was—like Fiorello—a barely operational company whose value

derived primarily from its possession of a New York license. There were no meaningful

distinctions between Fiorello and Valley. Bachtell_Aff. ¶15.

H. The Motion to Dismiss

Cresco filed an Amended Complaint, which included claims for breach of the No-Shop

Provision and for breach of the commitment for Fiorello to sell itself to Cresco. Ex. C. On May

24, 2019, this Court sustained the claim for breach of the No-Shop Provision, holding that the

Amended Complaint adequately alleged “the existence of a valid and binding agreement” with

respect to the No-Shop Provision, which Fiorello breached. Ex. B at 7. By contrast, the Court

dismissed Cresco’s claim for breach of the sale obligation because it was “an agreement to

agree.” Id. at 9.

I. Expert Discovery

At a court conference, Fiorello proposed to delay expert discovery until after Fiorello had

moved for summary judgment and the Court had ruled on that motion. The Court declined to

delay expert discovery. After this ruling, Cresco repeatedly attempted to negotiate an expert

discovery schedule with Fiorello, but Fiorello refused. Hipp_Aff. ¶39. Instead, Fiorello filed the

instant motion, with no schedule for expert discovery in place, and without knowing Cresco’s

damages theories or expert evidence, i.e., Fiorello attempted to force the schedule the Court had

rejected.

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Mr. Davidson, a valuations expert with M&A experience including in the cannabis

industry, prepared a report assessing Cresco’s damages. He opined that a binding exclusivity

provision is an important element of a preliminary agreement, but “two-way” exclusivity is rare

and demonstrates that Cresco incurred an additional cost from entering into the LOI – the cost of

waiting to speak to other potential targets. Ex. 72.

Mr. Davidson concluded that Cresco lost as much as $85 million as a result of Fiorello’s

breach. That loss calculation is based on the difference between the amount Cresco was forced

to pay for a replacement transaction and the amount it could have paid for Fiorello.

Mr. Davidson also calculated disgorgement damages.

After the parties had fully briefed summary judgment motions, the Court set a deadline

for expert discovery. Hipp_Aff. ¶40. During their depositions, both of Fiorello’s experts

testified that a mutual No-Shop Provision is rare, and that they have frequently seen parties to a

deal overcome obstacles to regulatory and shareholder approval. Id. ¶¶41-42.

J. Fiorello’s Refusal to Participate in Discovery Following Cresco’s Opposition

After Cresco served its summary judgment opposition, the Court authorized Fiorello to

take limited additional discovery on the issue of DOH’s willingness to approve a deal that

included consideration contingent on adult legalization. Id. ¶43. Cresco served discovery

requests limited to that issue. Id. ¶44. Fiorello refused to respond to Cresco’s requests. Id. As a

result, Fiorello has failed to produce admissible evidence to support its contention that DOH

would not have approved a transaction that included consideration contingent upon adult

legalization.

Fiorello also refused to respond to contention interrogatories. Id. ¶46.

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ARGUMENT

I. Fiorello Breached the No-Shop Provision

The No-Shop Provision prohibited Fiorello from “discuss[ing] . . . any transaction” to sell

Fiorello. Courts have interpreted similar provisions broadly. For example, one court observed

that “[t]he point of the exclusivity provision is to prevent [the seller] from engaging in any

discussion—no matter how informal or cursory—that might influence [the seller’s] participation

in its negotiations with [the plaintiff],” and cause the seller “to drag their feet while waiting out

expiration of the exclusivity provision.” PSC Metals, Inc. v. S. Recycling, LLC, 2018 WL

1566822, at *5 (M.D. Tenn. Mar. 29, 2018). See also NACCO, 997 A.2d at 14-16 (an “outgoing

call” informing a third party that it “would likely succeed with an all-cash offer” breached no-

shop clause which prohibited “any discussions” of a “Competing Transaction” and thus “was not

limited to soliciting a competing bid”); Genuine Parts Co. v. Essendant Inc., 2019 WL 4257160,

at *10-11 (Del. Ch. Sept. 9, 2019) (allegations that defendant “conveyed to [a third party] that a

revised offer would be accepted,” “thereby encouraging it to resubmit its offer with a slight

alteration,” were sufficient to establish breach).

Here, there is voluminous evidence of “discussions of any transaction”: in-person

meetings, calls, and text messages with three potential acquirers, culminating in written offers

from two of them. Supra at 5-8. This is evidence of an extraordinarily willful and persistent

breach. Fiorello cannot rest on Sirota and Yoss’s disingenuous denials, which require

“credibility determinations that are not a proper basis for summary judgment.” Xiang Fu He v.

Troon Mgmt., Inc., 34 N.Y.3d 167, 175 (2019).

Nor can Fiorello benefit from the fact that most of the prohibited discussions were oral,

rather than in writing. Br. 16. The fact that sophisticated parties bound to an exclusivity

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provision did not memorialize breaching discussions does not mean that no discussions occurred.

The emails, text messages, and phone records together are enough for a factfinder to conclude

that there were, in fact, significant discussions. They also show that Sirota and Yoss strategically

relied on oral communications and instructed their counterparties to do the same. Hipp_Aff.

¶¶12-18. Fiorello’s motion on the merits is frivolous.2

II. Fiorello’s Breach Caused Damages to Cresco

Fiorello contends that Cresco’s damages should be limited “to its reasonable out-of-

pocket expenses associated with its performance of the LOI,” because “Cresco cannot establish

that Fiorello’s alleged breach caused its alleged injuries,” and seeks to exclude “replacement

costs and lost profits.” Br. 18, 24. These arguments have no merit.

A. It Is Premature and Inefficient to Limit Cresco’s Damages Now

To begin, it is premature to limit damages now, where Fiorello’s arguments are highly

fact dependent, and disputed factual issues remain. Further, because Fiorello moved for

summary judgment prior to expert discovery, Fiorello’s motion is limited to only one of the

damages theories Cresco actually intends to pursue at trial. The Court should consider damages

only after the case is litigated on the merits.

Case Info

Judge

Andrew Borrok Track Judge’s New Case

Case No.

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Document Filed Date

May 06, 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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