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1 SUPREME COURT OF THE STATE OF NEW YORK
2 COUNTY OF NEW YORK : CIVIL TERM : PART 53
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3
CRESCO LABS, NEW YORK, LLC, a New York
4 limited liability company and, CRESCO LABS, LLC,
an Illinois limited liability company,
5
6 Plaintiff(s). Index
7 -against- 652343/2018
8
9 FIORELLO PHARMACEUTICALS, INC.,
a New York Corporation,
10
Defendant(s).
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12 PROCEEDINGS HELD VIRTUALLY VIA MICROSOFT TEAMS
November 15, 2022
13
B E F O R E:
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HONORABLE ANDREW BORROK, Supreme Court Justice
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APPEARANCES OF COUNSEL:
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For the Plaintiff
17 JENNER & BLOCK LLP
BY: STEPHEN ASCHER, ESQUIRE
18 JASON HIPP, ESQUIRE
MELISSA FEDORNAK, ESQUIRE
19 1155 Avenue of the Americas
New York, New York 10036
20
21 For the Defendant
IZOWER & FELDMAN LLP
22 BY: RONALD LEFTON, ESQUIRE
RACHEL IZOWER, ESQUIRE
23 DENNIS VILLASANA, ESQUIRE
1325 Franklin Avenue, Suite 255
24 Garden City, New York 11530
25 Janelle C. London, RMR, CRR
Senior Court Reporter
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1 THE COURT: Cresco Lab New York LLC versus Fiorello
2 Pharmaceuticals. 652343/2018.
3 Your appearances, please.
4 MR. ASCHER: Good morning, Your Honor. This is
5 Stephen Ascher from Jenner & Block on behalf of the
6 plaintiff and I'm here with my colleagues Jason Hipp and
7 Melissa Fedornak. And Mr. Hipp, to the extent your odder
8 takes argument on our cross motions for summary judgment,
9 Mr. Hipp will handle those and I will handle issues in
09:38:22 10 relation to Fiorello's motion for summary judgment.
11 THE COURT: All right.
12 Mr. Lefton?
13 MR. LEFTON: Ronald Lefton of Izower Lefton on
14 behalf of defendant Fiorello.
15 With me, Your Honor, are Rachel Izower and Dennis
16 Villasana and they are here in the conference room with me,
17 but they are not logged in. Only I'm logged in.
18 THE COURT: No, it's fine.
19 So good morning to you, too, sir.
09:38:53 20 I think we're going to start, Mr. Lefton, with your
21 motion.
22 MR. LEFTON: Okay. Shall I begin or do you have
23 questions, Your Honor?
24 THE COURT: Please.
25 MR. LEFTON: So, Your Honor, we have moved for
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1 summary judgment to dismiss Cresco's complaint or in the
2 alternative for an order limiting potential damages to
3 Cresco's out-of-pocket reliance damages in connection with
4 negotiation of a possible --
5 THE COURT: Let me ask you a question. Let me ask
6 you a question. As it relates to the second point, the
7 damages --
8 MR. LEFTON: Yes.
9 THE COURT: What damages do you -- how do you
09:39:33 10 characterize the damages that they're looking for in the
11 case?
12 MR. LEFTON: Well, according to their amended
13 complaint and their expert report and everything that's
14 preceded, they are looking for a type of expectancy damages
15 in the nature of replacement cost damages. And --
16 THE COURT: So they're not looking for lost
17 profits? They're looking for replacement costs. Is that
18 fair?
19 MR. LEFTON: I think that is fair. They're looking
09:40:03 20 for replacement cost. But I would argue, Your Honor, that
21 lost profits and replacement costs are all in the nature of
22 expectancy damages.
23 THE COURT: Well, they're not. They're not.
24 Here's why they're not. So in the lost profits context the
25 lost profits are based on what it is that you may well have
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1 earned which may or may not have been in the contemplation
2 of the parties during the time in which you entered the
3 contract. You look at that to see whether or not it's
4 recoverable. Replacement costs necessarily is within the
5 contemplation of the parties during the time in which you
6 enter a contract, so.
7 MR. LEFTON: Well --
8 THE COURT: It's different in that way. I mean, if
9 there is a breach and somebody has to --
09:40:51 10 MR. LEFTON: I would say no, Your Honor. I don't
11 think replacement costs are necessarily in contemplation of
12 the parties, especially in connection with what Your Honor
13 has already held is a preliminary agreement.
14 The replacement cost damages that Cresco is seeking
15 assumes that there would have been a definitive agreement;
16 assumes it would have been approved by the shareholders;
17 assumes it would have been approved by the Department of
18 Health.
19 THE COURT: Well, I'm not going to your argument
09:41:20 20 yet on whether or not Goodstein limits its damages. I'm
21 just saying it's different. All I was saying is that -- I
22 mean, you may say that the -- you may say that the -- that
23 the same logic should apply, but I don't think it's the same
24 damages is all I was getting at. We can talk about it.
25 MR. LEFTON: It may be theoretically different,
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1 Your Honor. I think it still is in the nature of expectancy
2 damages which would be contrary to the rule of Goodstein
3 because as the Appellate Division First Department said in
4 MG West, when you have a contract dependent upon third-party
5 approval you cannot have an expectancy that the deal would
6 ever close and therefore you can't get replacement cost
7 damages on the assumption that the deal would have closed
8 and MG West relies on Goodstein.
9 THE COURT: Like I said, we can talk about it when
09:42:16 10 we get to it. I mean, we can go all the way back to Hadley
11 versus Baxendale and stuff like that, but it's fine. I
12 understand what you're -- what you want to argue, but let's
13 move on for now. Let's go back to where you were in the
14 beginning.
15 MR. LEFTON: So let me start with causation.
16 Your Honor, Cresco cannot satisfy its burden that
17 damages, if any, were caused by and directly traceable to
18 Fiorello's alleged breach and not the result of either
19 intervening causes or would have occurred notwithstanding
09:42:54 20 the alleged breach. The law on that is plain in New York
21 under Kenford and under Pesa vs Yoma, 18 NY3d 527 and
22 Lexington 360 Associates. And you cannot -- Cresco cannot
23 as it does here rely on speculation, inference upon
24 inference and attorney argument. If you look at the record
25 in this case, Your Honor, the failure of causation is based
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1 on three separate things. First, it is entirely speculative
2 that any breach of the exclusivity clause prevented it be a
3 defendant in agreement. Indeed, Your Honor, it's complete
4 speculation as to whether there was a breach of the
5 exclusivity clause. I would argue that Cresco fails as a
6 matter of law to present evidence of an actual breach of the
7 very narrow cause here which prohibits not contact but a
8 specific type of discussion.
9 Next, assuming arguendo there was that breach there
09:44:04 10 are many reasons to show that this deal was not going to
11 come to fruition anyway in large part because of Cresco's
12 own conduct. I'll return to that, but next you then have
13 the issue of no shareholder approval and the record shows
14 that the preferred shareholders who had veto power would not
15 have approved this transaction. It was a rising volatile
16 market based upon Cresco's own expert and this was a below
17 value offer. Next -- not only a below value offer, but a
18 below value offer without security for the installment
19 payments.
09:44:45 20 Next, Your Honor, you have the -- that the
21 condition that there had to be approval by Department of
22 Health and there was no approval by Department of Health.
23 That's plain because Fiorello was not operational and in
24 this case I would just say also because 40 percent of the
25 anticipate consideration was based on a contingency of adult
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1 legalization, which the Department of Health advised would
2 not be acceptable. But the primary reason which Cresco
3 admits is that the Department of Health would not have
4 approved the deal because Fiorello was not operational and
5 they knew this was an issue based on their own
6 correspondence going back to March 2nd.
7 The causation issues of non approval by the
8 requirements of third party approval under -- of the
9 shareholders and then third party -- and remember, the
09:45:45 10 shareholders were not parties to the LOI, Your Honor. And
11 then also approval by the Department of Health puts this
12 case squarely in good state and its progeny.
13 I would also refer your Court to a newly recently
14 decided case. It's not in our breach because a decision is
15 not made until June of 2022 by your colleague Justice Cohen
16 in the new case of Noor, N-o-o-r and the citation to that
17 is --
18 THE COURT: I'd like you to have the decision
19 uploaded to NYSCEF.
09:46:24 20 MR. LEFTON: Sure. We'll be happy to upload the
21 decision. Should we do it right now?
22 THE COURT: With a normal letter. You know, there
23 is -- the Commercial Division rules permits you to submit
24 additional authority by letter. I'd like you to upload it
25 by letter to the -- and you can send a copy of your letter
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1 with the decision attached to the Part 53 e-mail address so
2 I can take a look at it.
3 MR. LEFTON: Okay, Your Honor. You'll have that
4 later today.
5 THE COURT: Thank you.
6 MR. LEFTON: If I can go back to the allegations of
7 breach and why there's no causation there the allegation is
8 that there were a series of context with Liberty and with
9 GTI and even with some other entity called Sea Hunter.
09:47:18 10 THE COURT: Didn't you eventually do a deal with
11 them?
12 MR. LEFTON: We eventually did a deal in August.
13 Actually, it was later than that because of the -- because
14 the Department of Health did not approve the deal, but a
15 deal was eventually done with the Green Thumb Industry, GTI.
16 But there is no proof in the record at all of any discussion
17 with GTI during this short exclusivity period.
18 THE COURT: I thought there was proof in the record
19 of the conversations that took place almost immediately.
09:47:54 20 MR. LEFTON: No, not with GTI, Your Honor. The
21 record only shows that in mid March GTI reached out. There
22 were no discussions. They sent an unsolicited offer letter
23 on March 20th and the record shows that Cresco responded to
24 that offer letter by saying they could not engage until at
25 least the end of March, March 30th. So that shows the
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1 absence of discussions and all the witnesses have testified
2 that there were no discussions. And, in fact, GTI testified
3 that they were frustrated by the unwillingness of Fiorello
4 to engage in March.
5 With regard --
6 THE COURT: I don't know that that testimony
7 matters.
8 MR. LEFTON: Well, but, Your Honor, there is no --
9 THE COURT: Because if they're aware of the No Shop
09:48:48 10 and then of course they're going to say that, right?
11 Otherwise, they could be exposing themselves to a tortious
12 interference claim, wouldn't they? I mean, I don't know how
13 credible this self-serving statement is.
14 MR. LEFTON: I'm not assuming that every witness
15 has lied, especially when there is no evidence to the
16 contrary. This is on summary judgment.
17 THE COURT: Well, I don't know that I'll read it
18 that way -- Mr. Archer, let's do this one by one, the no
19 evidence of breach -- I saw in your papers, Mr. Archer, that
09:49:26 20 you make the point -- I just want to make this very clear on
21 the transcript. You make the point I think in your papers
22 that basically that there is prima facie evidence of a
23 breach.
24 MR. ASCHER: Yes, Your Honor.
25 And for the record, it's Mr. Ascher. Thank you.
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1 THE COURT: I apologize.
2 MR. ASCHER: No apology necessary. I just wanted
3 to correct it.
4 THE COURT: I'll be better.
5 MR. ASCHER: No worries. You're not the first.
6 So, thank you for giving me the chance to correct
7 that, Your Honor. Mr. Lefton's description of the record is
8 selective, to say the least. So there were three different
9 potential acquirers that Fiorello engaged with during the No
09:50:19 10 Shop period and so it's three separate stories and they're
11 all breaches. The first one was Liberty and they were not
12 the ultimate acquirer, but they were actually the ones with
13 which they had the most breach in contacts during the No
14 Shop period. Literally the same day that Sirota and Yoss
15 signed the No-Shop Agreement, they reached out to Liberty
16 and set up an in-person meeting with them. They did meet
17 them at a restaurant in New York for over an hour. We have
18 phone records showing multiple conversations between the
19 principals of Fiorello and the principal of Liberty.
09:51:06 20 We also have --
21 THE COURT: And this is all during the No Shop?
22 MR. ASCHER: This is all during the No Shop and
23 Mr. Lefton is correct that his clients testified oh, all we
24 talked about was Purlig (ph) and the Olympics. I think
25 suffice it to say the jury will be entitled to conclude that
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1 that testimony was not credible.
2 And just to put the icing on the cake in terms of
3 the Liberty story, Your Honor, at one point Mister -- the
4 principal of Liberty wrote an e-mail to one of his
5 colleagues telling him that when you write Fiorello, write
6 the e-mail to, quote, "make it appear as if we have not had
7 discussions." So he knew that he was supposed to pretend
8 that it was an unsolicited offer when in fact it had been
9 discussed repeatedly by e-mail, by text and over the phone.
09:52:07 10 So that's the Liberty story.
11 Second, Your Honor, very briefly, there is a Sea
12 Hunter story. Sea Hunter is an entity that was in Florida.
13 Again, two days after signing the LOI, the principals of
14 Fiorello reach out to Sea Hunter to set up an in-person
15 meeting. They have an in-person meeting and they enter into
16 an NDA which reflects that the purpose of the meeting was
17 to, quote, "discuss a possible transaction."
18 THE COURT: And that's also during the No Shop
19 time?
09:52:40 20 MR. ASCHER: Also during the No Shop. That one
21 didn't go as far as the others, so we don't spend a lot of
22 time on it, but it's a second example.
23 And then the third one, Your Honor, is GTI, and GTI
24 is the one that ultimately did acquire Fiorello and what
25 happened with GTI is this: they had had previous
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1 discussions with Fiorello before the No-Shop Agreement --
2 before the letter of intent before the No Shop period and
3 then during the exclusivity period the principal of GTI
4 twice e-mailed Fiorello to say hey guys, what's going on.
5 And to be fair, the first two times they didn't respond to
6 him, but then they had a meeting, they had a dinner Saturday
7 night with some of their investors. This is now March 19th
8 and then the morning of March 20th Sirota and Yoss, the
9 principals of Fiorello, call the principal of GTI. There is
09:53:50 10 a phone call and after that phone call there is a flurry of
11 activity that day. There are multiple calls between
12 Fiorello, Fiorello's investors, GTI, GTI's lawyers, and at
13 the end of that same day, GTI issues its first offer to
14 Fiorello. This is, again, during the No Shop period.
15 So when Mr. Lefton says it was unsolicited, he's
16 selectively ignoring the fact that there was an outgoing
17 phone call from Sirota and Yoss, they're both on the line
18 together, to the principal of GTI.
19 MR. LEFTON: Your Honor, may I? Mr. Ascher, I
09:54:36 20 think, completely misstates the record, but it doesn't
21 matter because all Mr. Ascher has done is say there are
22 contacts and there is a question of fact as to whether there
23 were discussions about a sale of a majority of the equity of
24 Fiorello.
25 THE COURT: So, in other words -- let me just say
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1 back to you what you just said.
2 In other words, what -- the way you interpret
3 Mr. Ascher's comments is that there are material issues of
4 fact that preclude me awarding him summary judgment as to
5 whether or not a breach occurred, not whether or not you're
6 entitled to summary judgment dismissal on the issue of
7 whether or not there was a breach?
8 MR. LEFTON: Your Honor, I have not moved on
9 summary judgment on whether there was a breach. You're
09:55:28 10 right, however, that he cannot get summary judgment on that.
11 THE COURT: I didn't say that. I said that --
12 MR. LEFTON: What I'm saying --
13 THE COURT: I didn't say that. That was great. I
14 like that, Mr. Lefton. I said that, in other words, what
15 you're saying is that you're not entitled. I wasn't
16 commenting on what you moved on either. That was a great --
17 you're very -- I liked you the first moment I met you and
18 you're just confirming why again.
19 MR. LEFTON: Thank you, Your Honor. You're kind.
09:55:54 20 THE COURT: But no, in other words, all you're
21 telling me is that your clients have denied that there was a
22 breach here; thus, that creates an issue of fact as to
23 whether or not a breech cured, right?
24 MR. LEFTON: I think that's fair, Your Honor.
25 But the point is that even if a breach did occur,
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1 that was not the cause of there not being a definitive
2 agreement before the letter of intent expired at the end of
3 March and the reason is that to make that next inference or
4 jump requires inference upon inference and speculation.
5 If you look at this case the letter of intent had a
6 very short window --
7 THE COURT: Thirty days.
8 MR. LEFTON: -- to negotiate. Thirty business
9 days, Your Honor. The first third of that period was wasted
09:56:59 10 because Cresco did not make the good-faith payment when it
11 was due on the execution of the agreement and then after
12 these contacts with Liberty in February, which, by the way,
13 Liberty initiated after meeting with Cresco on having been
14 told that Cresco had a firm deal for New York, but after
15 those contacts in February with Liberty, Fiorello accepted
16 the late payment and Fiorello without any obligation to do
17 so effectively entered into an amendment of the LOI to have
18 an escrow arrangement for that good-faith payment. So for
19 the six weeks one third was wasted because Cresco did not
09:57:51 20 comply.
21 THE COURT: And therefore what?
22 MR. LEFTON: Well, I'm giving you reasons why it's
23 speculation rather than but for causation.
24 THE COURT: Well, that sounds like an argument that
25 you want to make to a jury.
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1 MR. LEFTON: -- resulted in anything.
2 THE COURT: I mean, it sounds like an argument you
3 want to make to a jury, right? You want to tell me why,
4 Your Honor, there wasn't a lot of time in which to make a
5 deal, but I don't know. Some very sophisticated business
6 are able to negotiate $44 billion transactions for social
7 media platforms in an afternoon. Now, I realize that not
8 everyone is Elon Musk.
9 MR. LEFTON: Thank goodness for that.
09:58:34 10 THE COURT: Well, I'm not going to say that, and
11 respectfully, unless you know him and you have some personal
12 feelings about this, I only was getting at the fact that I
13 don't think you can breach the agreement potentially and
14 then say, well, they never could have entered into an
15 agreement anyway. Like, that -- I don't know how that
16 works.
17 MR. LEFTON: Your Honor, I'm not saying they never
18 could have. I'm saying in the circumstances of this case
19 where there were a host of open issues at the end of the LOI
09:59:09 20 period.
21 THE COURT: But there may have been open issues
22 because your client was breaching the No Shop; right?
23 MR. LEFTON: No.
24 THE COURT: No?
25 MR. LEFTON: No. For instance, for instance --
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1 THE COURT: Okay.
2 MR. LEFTON: On March of 22nd Cresco reaches out
3 and says we have some issues where we need the guidance of
4 the Department of Health before we can proceed. We need
5 guidance on issues of ownership structure, who can be an
6 owner.
7 THE COURT: Sure.
8 MR. LEFTON: We need guidance from the Department
9 of Health on deal structure and those issues will affect the
09:59:51 10 critical tax issues and tax treatment of this transaction
11 which Cresco characterizes as a gating issue --
12 THE COURT: We have to stop. There is a fire alarm
13 going off right now and Spencer is raising his hand, which
14 means we need to take a break. You can stay on the thing,
15 but until Spencer comes back and lets us know that the fire
16 drill is over we got to stop right now. Sorry. So off the
17 record.
18 (Whereupon, the proceedings are held off the
19 record.)
10:10:01 20 THE COURT: Let's go back on the record.
21 Mr. Lefton, you were talking to me and I had asked
22 you -- the allegations are that Mr. Ascher has essentially
23 from the moment that you entered into the LOI that you
24 reached it by reaching out to lots of other people try to
25 get a deal going and having done that how do you come back
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1 now and say well, a deal never could have gotten done during
2 the 30-day period? I understand that the deposit wasn't
3 made within the time period that it was supposed to be made,
4 but eventually your client accepted the deposit; right?
5 MR. LEFTON: My point, Your Honor, is that the
6 issue isn't whether or not that breach was waived. It was.
7 It was waived after the alleged contacts with Liberty. My
8 point is that Cresco took a six-week window to negotiate and
9 reduced it to four weeks. They also didn't send a due
10:11:18 10 diligence list until four weeks. The only allegation
11 against Fiorello is that because of the alleged breach
12 Fiorello slow walked.
13 Well, you already had this delay on Cresco's side
14 of two weeks before even sending a diligence list before
15 fulfilling its obligation to make a payment and then it's
16 another week until March 8th until they send a draft SPA and
17 another week until March 15th before they send a draft note
18 and a draft exchange agreement.
19 THE COURT: Sounds like a lot of issues to put in
10:11:52 20 front of a jury as to why it wouldn't have happened.
21 MR. LEFTON: My point is that it's speculation as
22 to whether or not a definitive agreement would ever be
23 reached. Remember, Your Honor, you have already held and
24 it's the law of this case that at the conclusion of the LOI
25 period there were many open issues and therefore there is no
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1 enforceable contract here. This is only a preliminary
2 agreement.
3 THE COURT: Yes, but I didn't rule as to why that
4 was the case. I mean, so that's what I'm saying is that you
5 guys have two different factual stories. Your factual story
6 is, look, Judge, while there may be prima facie evidence of
7 a breach and in fact there may have been a breach, they
8 still can't prove that the ultimate agreement would have
9 been entered into which I take it is why they're not
10:12:49 10 entitled to lost profits and other things, but I'm not sure
11 that you can say that as a matter of law having breached the
12 agreement taking what they're saying as true.
13 MR. LEFTON: I'm saying, Your Honor, that causation
14 requires it to be the but for cause.
15 THE COURT: Yes, and I think that --
16 MR. LEFTON: And here when Cresco itself on
17 March 22nd has -- is looking for guidance from the
18 Department of Health and then on March 26th Cresco -- I'm
19 sorry -- on April 4th after the LOI expired, Mr. Bachtell,
10:13:30 20 the CEO of Cresco, writes to Fiorello, "I agree this process
21 is taking longer than either party wants, but I believe both
22 sides have been diligent and I know the delays have been
23 related to tricky tax structuring, responses from DOH,
24 counsel's schedules, and New York unforeseeable weather last
25 month."
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1 The responses from DOH was a reference to the
2 request first made on March 22nd. That left only seven days
3 to get those responses from DOH as to critical issues of
4 ownership structure, deal structure and that affected the
5 tax structure.
6 THE COURT: The deal could have been written up in
7 an afternoon. I mean, the deal could have been written up
8 in an afternoon if they got the information that they -- I
9 mean, I don't think --
10:14:26 10 MR. LEFTON: Your Honor, that's speculation, Your
11 Honor. Maybe it could have, maybe it couldn't.
12 THE COURT: It's a factual issue as to why they may
13 not entitled to summary judgment today is what it is. Is
14 that you've got an argument that they're not entitled to
15 summary judgment and, okay, I'm hearing that argument, but I
16 don't think that you necessarily get to prove that as a
17 matter of law that they can't prove -- and even still if you
18 breach, I still don't understand why you're not of the view
19 that -- I mean, you're going to the heart of the Goodstein
10:15:17 20 decision in the sense that breach of the No-Shop Provision
21 are you saying that they're not entitled to even
22 out-of-pockets as it relates to your alleged breach of the
23 No Shop? I mean, I thought your point in bringing up
24 Goodstein was they're not entitled to lost profits which you
25 equate with replacement transaction. We can get to that
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1 because there is no evidence that there would have been an
2 agreement that was entered into and they can't prove
3 causation, but that's a different issue than whether or not
4 was a breach of the binding No-Shop Provision; right?
5 Aren't you conflating two different things?
6 MR. LEFTON: I agree with that, Your Honor. It is
7 a different issue than whether there is a breach. My point
8 is that the issue of whether they would have been a
9 definitive agreement is just a further instance of
10:16:11 10 speculation. The DOH did not respond or give the guidance
11 that Cresco felt critical before the LOI expired because of
12 Cresco's own delays. But Your Honor is right, I think, that
13 the issue of whether or not if there was a breach that
14 caused the failure of the definitive agreement, and that's
15 the issue, not whether there was simply a breach, but
16 whether or not that breach caused the failure to reach a
17 definitive agreement. That is speculation, but even if that
18 occurred, Your Honor, that would only entitle Cresco to, at
19 most, out-of-pocket reliance damages and that's the second
10:16:57 20 branch of our motion. And the reason for that is as Your
21 Honor has already held this was a preliminary agreement with
22 open issues plus preliminary agreement required several
23 levels of third party approval. If a definitive agreement
24 had been reached it would be no more than an offer to be
25 made to shareholders to agree to in a rising market, a
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1 volatile market and it would have been a below market offer
2 at that point with no -- and one of the issues that had not
3 been resolved was interest rate. One of the issues --
4 because this was a three -- a two-year obligation.
5 Another issue on this two-year obligation was
6 security for the installment payments. Another issue that
7 had not been resolved Cresco hadn't even decided what class
8 -- it had four classes of stock -- what class of stock and
9 the likes attended to that class, the Fiorello equity could
10:18:03 10 have been exchanged for the option of Fiorello shareholders.
11 So the whole exchange process had not been negotiated and
12 worked out in part because Cresco never made an offer as to
13 say this stock with these rights.
14 So all these open issues if they had been resolved
15 and there was so many they could not be resolved in the for
16 shortened and negotiation period where Cresco was busy
17 negotiating with other states -- retailers and other states
18 and busying -- Cresco was negotiating with Liberty. That's
19 why Liberty reached out to Fiorello. They wanted to buy
10:18:49 20 Liberty. You then have th
Preview
FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 1 1 SUPREME COURT OF THE STATE OF NEW YORK 2 COUNTY OF NEW YORK : CIVIL TERM : PART 53 ------------------------------------------x 3 CRESCO LABS, NEW YORK, LLC, a New York 4 limited liability company and, CRESCO LABS, LLC, an Illinois limited liability company, 5 6 Plaintiff(s). Index 7 -against- 652343/2018 8 9 FIORELLO PHARMACEUTICALS, INC., a New York Corporation, 10 Defendant(s). 11 ------------------------------------------x 12 PROCEEDINGS HELD VIRTUALLY VIA MICROSOFT TEAMS November 15, 2022 13 B E F O R E: 14 HONORABLE ANDREW BORROK, Supreme Court Justice 15 APPEARANCES OF COUNSEL: 16 For the Plaintiff 17 JENNER & BLOCK LLP BY: STEPHEN ASCHER, ESQUIRE 18 JASON HIPP, ESQUIRE MELISSA FEDORNAK, ESQUIRE 19 1155 Avenue of the Americas New York, New York 10036 20 21 For the Defendant IZOWER & FELDMAN LLP 22 BY: RONALD LEFTON, ESQUIRE RACHEL IZOWER, ESQUIRE 23 DENNIS VILLASANA, ESQUIRE 1325 Franklin Avenue, Suite 255 24 Garden City, New York 11530 25 Janelle C. London, RMR, CRR Senior Court Reporter JCL 1 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 2 Proceedings 1 THE COURT: Cresco Lab New York LLC versus Fiorello 2 Pharmaceuticals. 652343/2018. 3 Your appearances, please. 4 MR. ASCHER: Good morning, Your Honor. This is 5 Stephen Ascher from Jenner & Block on behalf of the 6 plaintiff and I'm here with my colleagues Jason Hipp and 7 Melissa Fedornak. And Mr. Hipp, to the extent your odder 8 takes argument on our cross motions for summary judgment, 9 Mr. Hipp will handle those and I will handle issues in 09:38:22 10 relation to Fiorello's motion for summary judgment. 11 THE COURT: All right. 12 Mr. Lefton? 13 MR. LEFTON: Ronald Lefton of Izower Lefton on 14 behalf of defendant Fiorello. 15 With me, Your Honor, are Rachel Izower and Dennis 16 Villasana and they are here in the conference room with me, 17 but they are not logged in. Only I'm logged in. 18 THE COURT: No, it's fine. 19 So good morning to you, too, sir. 09:38:53 20 I think we're going to start, Mr. Lefton, with your 21 motion. 22 MR. LEFTON: Okay. Shall I begin or do you have 23 questions, Your Honor? 24 THE COURT: Please. 25 MR. LEFTON: So, Your Honor, we have moved for JCL 2 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 3 Proceedings 1 summary judgment to dismiss Cresco's complaint or in the 2 alternative for an order limiting potential damages to 3 Cresco's out-of-pocket reliance damages in connection with 4 negotiation of a possible -- 5 THE COURT: Let me ask you a question. Let me ask 6 you a question. As it relates to the second point, the 7 damages -- 8 MR. LEFTON: Yes. 9 THE COURT: What damages do you -- how do you 09:39:33 10 characterize the damages that they're looking for in the 11 case? 12 MR. LEFTON: Well, according to their amended 13 complaint and their expert report and everything that's 14 preceded, they are looking for a type of expectancy damages 15 in the nature of replacement cost damages. And -- 16 THE COURT: So they're not looking for lost 17 profits? They're looking for replacement costs. Is that 18 fair? 19 MR. LEFTON: I think that is fair. They're looking 09:40:03 20 for replacement cost. But I would argue, Your Honor, that 21 lost profits and replacement costs are all in the nature of 22 expectancy damages. 23 THE COURT: Well, they're not. They're not. 24 Here's why they're not. So in the lost profits context the 25 lost profits are based on what it is that you may well have JCL 3 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 4 Proceedings 1 earned which may or may not have been in the contemplation 2 of the parties during the time in which you entered the 3 contract. You look at that to see whether or not it's 4 recoverable. Replacement costs necessarily is within the 5 contemplation of the parties during the time in which you 6 enter a contract, so. 7 MR. LEFTON: Well -- 8 THE COURT: It's different in that way. I mean, if 9 there is a breach and somebody has to -- 09:40:51 10 MR. LEFTON: I would say no, Your Honor. I don't 11 think replacement costs are necessarily in contemplation of 12 the parties, especially in connection with what Your Honor 13 has already held is a preliminary agreement. 14 The replacement cost damages that Cresco is seeking 15 assumes that there would have been a definitive agreement; 16 assumes it would have been approved by the shareholders; 17 assumes it would have been approved by the Department of 18 Health. 19 THE COURT: Well, I'm not going to your argument 09:41:20 20 yet on whether or not Goodstein limits its damages. I'm 21 just saying it's different. All I was saying is that -- I 22 mean, you may say that the -- you may say that the -- that 23 the same logic should apply, but I don't think it's the same 24 damages is all I was getting at. We can talk about it. 25 MR. LEFTON: It may be theoretically different, JCL 4 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 5 Proceedings 1 Your Honor. I think it still is in the nature of expectancy 2 damages which would be contrary to the rule of Goodstein 3 because as the Appellate Division First Department said in 4 MG West, when you have a contract dependent upon third-party 5 approval you cannot have an expectancy that the deal would 6 ever close and therefore you can't get replacement cost 7 damages on the assumption that the deal would have closed 8 and MG West relies on Goodstein. 9 THE COURT: Like I said, we can talk about it when 09:42:16 10 we get to it. I mean, we can go all the way back to Hadley 11 versus Baxendale and stuff like that, but it's fine. I 12 understand what you're -- what you want to argue, but let's 13 move on for now. Let's go back to where you were in the 14 beginning. 15 MR. LEFTON: So let me start with causation. 16 Your Honor, Cresco cannot satisfy its burden that 17 damages, if any, were caused by and directly traceable to 18 Fiorello's alleged breach and not the result of either 19 intervening causes or would have occurred notwithstanding 09:42:54 20 the alleged breach. The law on that is plain in New York 21 under Kenford and under Pesa vs Yoma, 18 NY3d 527 and 22 Lexington 360 Associates. And you cannot -- Cresco cannot 23 as it does here rely on speculation, inference upon 24 inference and attorney argument. If you look at the record 25 in this case, Your Honor, the failure of causation is based JCL 5 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 6 Proceedings 1 on three separate things. First, it is entirely speculative 2 that any breach of the exclusivity clause prevented it be a 3 defendant in agreement. Indeed, Your Honor, it's complete 4 speculation as to whether there was a breach of the 5 exclusivity clause. I would argue that Cresco fails as a 6 matter of law to present evidence of an actual breach of the 7 very narrow cause here which prohibits not contact but a 8 specific type of discussion. 9 Next, assuming arguendo there was that breach there 09:44:04 10 are many reasons to show that this deal was not going to 11 come to fruition anyway in large part because of Cresco's 12 own conduct. I'll return to that, but next you then have 13 the issue of no shareholder approval and the record shows 14 that the preferred shareholders who had veto power would not 15 have approved this transaction. It was a rising volatile 16 market based upon Cresco's own expert and this was a below 17 value offer. Next -- not only a below value offer, but a 18 below value offer without security for the installment 19 payments. 09:44:45 20 Next, Your Honor, you have the -- that the 21 condition that there had to be approval by Department of 22 Health and there was no approval by Department of Health. 23 That's plain because Fiorello was not operational and in 24 this case I would just say also because 40 percent of the 25 anticipate consideration was based on a contingency of adult JCL 6 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 7 Proceedings 1 legalization, which the Department of Health advised would 2 not be acceptable. But the primary reason which Cresco 3 admits is that the Department of Health would not have 4 approved the deal because Fiorello was not operational and 5 they knew this was an issue based on their own 6 correspondence going back to March 2nd. 7 The causation issues of non approval by the 8 requirements of third party approval under -- of the 9 shareholders and then third party -- and remember, the 09:45:45 10 shareholders were not parties to the LOI, Your Honor. And 11 then also approval by the Department of Health puts this 12 case squarely in good state and its progeny. 13 I would also refer your Court to a newly recently 14 decided case. It's not in our breach because a decision is 15 not made until June of 2022 by your colleague Justice Cohen 16 in the new case of Noor, N-o-o-r and the citation to that 17 is -- 18 THE COURT: I'd like you to have the decision 19 uploaded to NYSCEF. 09:46:24 20 MR. LEFTON: Sure. We'll be happy to upload the 21 decision. Should we do it right now? 22 THE COURT: With a normal letter. You know, there 23 is -- the Commercial Division rules permits you to submit 24 additional authority by letter. I'd like you to upload it 25 by letter to the -- and you can send a copy of your letter JCL 7 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 8 Proceedings 1 with the decision attached to the Part 53 e-mail address so 2 I can take a look at it. 3 MR. LEFTON: Okay, Your Honor. You'll have that 4 later today. 5 THE COURT: Thank you. 6 MR. LEFTON: If I can go back to the allegations of 7 breach and why there's no causation there the allegation is 8 that there were a series of context with Liberty and with 9 GTI and even with some other entity called Sea Hunter. 09:47:18 10 THE COURT: Didn't you eventually do a deal with 11 them? 12 MR. LEFTON: We eventually did a deal in August. 13 Actually, it was later than that because of the -- because 14 the Department of Health did not approve the deal, but a 15 deal was eventually done with the Green Thumb Industry, GTI. 16 But there is no proof in the record at all of any discussion 17 with GTI during this short exclusivity period. 18 THE COURT: I thought there was proof in the record 19 of the conversations that took place almost immediately. 09:47:54 20 MR. LEFTON: No, not with GTI, Your Honor. The 21 record only shows that in mid March GTI reached out. There 22 were no discussions. They sent an unsolicited offer letter 23 on March 20th and the record shows that Cresco responded to 24 that offer letter by saying they could not engage until at 25 least the end of March, March 30th. So that shows the JCL 8 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 9 Proceedings 1 absence of discussions and all the witnesses have testified 2 that there were no discussions. And, in fact, GTI testified 3 that they were frustrated by the unwillingness of Fiorello 4 to engage in March. 5 With regard -- 6 THE COURT: I don't know that that testimony 7 matters. 8 MR. LEFTON: Well, but, Your Honor, there is no -- 9 THE COURT: Because if they're aware of the No Shop 09:48:48 10 and then of course they're going to say that, right? 11 Otherwise, they could be exposing themselves to a tortious 12 interference claim, wouldn't they? I mean, I don't know how 13 credible this self-serving statement is. 14 MR. LEFTON: I'm not assuming that every witness 15 has lied, especially when there is no evidence to the 16 contrary. This is on summary judgment. 17 THE COURT: Well, I don't know that I'll read it 18 that way -- Mr. Archer, let's do this one by one, the no 19 evidence of breach -- I saw in your papers, Mr. Archer, that 09:49:26 20 you make the point -- I just want to make this very clear on 21 the transcript. You make the point I think in your papers 22 that basically that there is prima facie evidence of a 23 breach. 24 MR. ASCHER: Yes, Your Honor. 25 And for the record, it's Mr. Ascher. Thank you. JCL 9 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 10 Proceedings 1 THE COURT: I apologize. 2 MR. ASCHER: No apology necessary. I just wanted 3 to correct it. 4 THE COURT: I'll be better. 5 MR. ASCHER: No worries. You're not the first. 6 So, thank you for giving me the chance to correct 7 that, Your Honor. Mr. Lefton's description of the record is 8 selective, to say the least. So there were three different 9 potential acquirers that Fiorello engaged with during the No 09:50:19 10 Shop period and so it's three separate stories and they're 11 all breaches. The first one was Liberty and they were not 12 the ultimate acquirer, but they were actually the ones with 13 which they had the most breach in contacts during the No 14 Shop period. Literally the same day that Sirota and Yoss 15 signed the No-Shop Agreement, they reached out to Liberty 16 and set up an in-person meeting with them. They did meet 17 them at a restaurant in New York for over an hour. We have 18 phone records showing multiple conversations between the 19 principals of Fiorello and the principal of Liberty. 09:51:06 20 We also have -- 21 THE COURT: And this is all during the No Shop? 22 MR. ASCHER: This is all during the No Shop and 23 Mr. Lefton is correct that his clients testified oh, all we 24 talked about was Purlig (ph) and the Olympics. I think 25 suffice it to say the jury will be entitled to conclude that JCL 10 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 11 Proceedings 1 that testimony was not credible. 2 And just to put the icing on the cake in terms of 3 the Liberty story, Your Honor, at one point Mister -- the 4 principal of Liberty wrote an e-mail to one of his 5 colleagues telling him that when you write Fiorello, write 6 the e-mail to, quote, "make it appear as if we have not had 7 discussions." So he knew that he was supposed to pretend 8 that it was an unsolicited offer when in fact it had been 9 discussed repeatedly by e-mail, by text and over the phone. 09:52:07 10 So that's the Liberty story. 11 Second, Your Honor, very briefly, there is a Sea 12 Hunter story. Sea Hunter is an entity that was in Florida. 13 Again, two days after signing the LOI, the principals of 14 Fiorello reach out to Sea Hunter to set up an in-person 15 meeting. They have an in-person meeting and they enter into 16 an NDA which reflects that the purpose of the meeting was 17 to, quote, "discuss a possible transaction." 18 THE COURT: And that's also during the No Shop 19 time? 09:52:40 20 MR. ASCHER: Also during the No Shop. That one 21 didn't go as far as the others, so we don't spend a lot of 22 time on it, but it's a second example. 23 And then the third one, Your Honor, is GTI, and GTI 24 is the one that ultimately did acquire Fiorello and what 25 happened with GTI is this: they had had previous JCL 11 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 12 Proceedings 1 discussions with Fiorello before the No-Shop Agreement -- 2 before the letter of intent before the No Shop period and 3 then during the exclusivity period the principal of GTI 4 twice e-mailed Fiorello to say hey guys, what's going on. 5 And to be fair, the first two times they didn't respond to 6 him, but then they had a meeting, they had a dinner Saturday 7 night with some of their investors. This is now March 19th 8 and then the morning of March 20th Sirota and Yoss, the 9 principals of Fiorello, call the principal of GTI. There is 09:53:50 10 a phone call and after that phone call there is a flurry of 11 activity that day. There are multiple calls between 12 Fiorello, Fiorello's investors, GTI, GTI's lawyers, and at 13 the end of that same day, GTI issues its first offer to 14 Fiorello. This is, again, during the No Shop period. 15 So when Mr. Lefton says it was unsolicited, he's 16 selectively ignoring the fact that there was an outgoing 17 phone call from Sirota and Yoss, they're both on the line 18 together, to the principal of GTI. 19 MR. LEFTON: Your Honor, may I? Mr. Ascher, I 09:54:36 20 think, completely misstates the record, but it doesn't 21 matter because all Mr. Ascher has done is say there are 22 contacts and there is a question of fact as to whether there 23 were discussions about a sale of a majority of the equity of 24 Fiorello. 25 THE COURT: So, in other words -- let me just say JCL 12 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 13 Proceedings 1 back to you what you just said. 2 In other words, what -- the way you interpret 3 Mr. Ascher's comments is that there are material issues of 4 fact that preclude me awarding him summary judgment as to 5 whether or not a breach occurred, not whether or not you're 6 entitled to summary judgment dismissal on the issue of 7 whether or not there was a breach? 8 MR. LEFTON: Your Honor, I have not moved on 9 summary judgment on whether there was a breach. You're 09:55:28 10 right, however, that he cannot get summary judgment on that. 11 THE COURT: I didn't say that. I said that -- 12 MR. LEFTON: What I'm saying -- 13 THE COURT: I didn't say that. That was great. I 14 like that, Mr. Lefton. I said that, in other words, what 15 you're saying is that you're not entitled. I wasn't 16 commenting on what you moved on either. That was a great -- 17 you're very -- I liked you the first moment I met you and 18 you're just confirming why again. 19 MR. LEFTON: Thank you, Your Honor. You're kind. 09:55:54 20 THE COURT: But no, in other words, all you're 21 telling me is that your clients have denied that there was a 22 breach here; thus, that creates an issue of fact as to 23 whether or not a breech cured, right? 24 MR. LEFTON: I think that's fair, Your Honor. 25 But the point is that even if a breach did occur, JCL 13 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 14 Proceedings 1 that was not the cause of there not being a definitive 2 agreement before the letter of intent expired at the end of 3 March and the reason is that to make that next inference or 4 jump requires inference upon inference and speculation. 5 If you look at this case the letter of intent had a 6 very short window -- 7 THE COURT: Thirty days. 8 MR. LEFTON: -- to negotiate. Thirty business 9 days, Your Honor. The first third of that period was wasted 09:56:59 10 because Cresco did not make the good-faith payment when it 11 was due on the execution of the agreement and then after 12 these contacts with Liberty in February, which, by the way, 13 Liberty initiated after meeting with Cresco on having been 14 told that Cresco had a firm deal for New York, but after 15 those contacts in February with Liberty, Fiorello accepted 16 the late payment and Fiorello without any obligation to do 17 so effectively entered into an amendment of the LOI to have 18 an escrow arrangement for that good-faith payment. So for 19 the six weeks one third was wasted because Cresco did not 09:57:51 20 comply. 21 THE COURT: And therefore what? 22 MR. LEFTON: Well, I'm giving you reasons why it's 23 speculation rather than but for causation. 24 THE COURT: Well, that sounds like an argument that 25 you want to make to a jury. JCL 14 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 15 Proceedings 1 MR. LEFTON: -- resulted in anything. 2 THE COURT: I mean, it sounds like an argument you 3 want to make to a jury, right? You want to tell me why, 4 Your Honor, there wasn't a lot of time in which to make a 5 deal, but I don't know. Some very sophisticated business 6 are able to negotiate $44 billion transactions for social 7 media platforms in an afternoon. Now, I realize that not 8 everyone is Elon Musk. 9 MR. LEFTON: Thank goodness for that. 09:58:34 10 THE COURT: Well, I'm not going to say that, and 11 respectfully, unless you know him and you have some personal 12 feelings about this, I only was getting at the fact that I 13 don't think you can breach the agreement potentially and 14 then say, well, they never could have entered into an 15 agreement anyway. Like, that -- I don't know how that 16 works. 17 MR. LEFTON: Your Honor, I'm not saying they never 18 could have. I'm saying in the circumstances of this case 19 where there were a host of open issues at the end of the LOI 09:59:09 20 period. 21 THE COURT: But there may have been open issues 22 because your client was breaching the No Shop; right? 23 MR. LEFTON: No. 24 THE COURT: No? 25 MR. LEFTON: No. For instance, for instance -- JCL 15 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 16 Proceedings 1 THE COURT: Okay. 2 MR. LEFTON: On March of 22nd Cresco reaches out 3 and says we have some issues where we need the guidance of 4 the Department of Health before we can proceed. We need 5 guidance on issues of ownership structure, who can be an 6 owner. 7 THE COURT: Sure. 8 MR. LEFTON: We need guidance from the Department 9 of Health on deal structure and those issues will affect the 09:59:51 10 critical tax issues and tax treatment of this transaction 11 which Cresco characterizes as a gating issue -- 12 THE COURT: We have to stop. There is a fire alarm 13 going off right now and Spencer is raising his hand, which 14 means we need to take a break. You can stay on the thing, 15 but until Spencer comes back and lets us know that the fire 16 drill is over we got to stop right now. Sorry. So off the 17 record. 18 (Whereupon, the proceedings are held off the 19 record.) 10:10:01 20 THE COURT: Let's go back on the record. 21 Mr. Lefton, you were talking to me and I had asked 22 you -- the allegations are that Mr. Ascher has essentially 23 from the moment that you entered into the LOI that you 24 reached it by reaching out to lots of other people try to 25 get a deal going and having done that how do you come back JCL 16 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 17 Proceedings 1 now and say well, a deal never could have gotten done during 2 the 30-day period? I understand that the deposit wasn't 3 made within the time period that it was supposed to be made, 4 but eventually your client accepted the deposit; right? 5 MR. LEFTON: My point, Your Honor, is that the 6 issue isn't whether or not that breach was waived. It was. 7 It was waived after the alleged contacts with Liberty. My 8 point is that Cresco took a six-week window to negotiate and 9 reduced it to four weeks. They also didn't send a due 10:11:18 10 diligence list until four weeks. The only allegation 11 against Fiorello is that because of the alleged breach 12 Fiorello slow walked. 13 Well, you already had this delay on Cresco's side 14 of two weeks before even sending a diligence list before 15 fulfilling its obligation to make a payment and then it's 16 another week until March 8th until they send a draft SPA and 17 another week until March 15th before they send a draft note 18 and a draft exchange agreement. 19 THE COURT: Sounds like a lot of issues to put in 10:11:52 20 front of a jury as to why it wouldn't have happened. 21 MR. LEFTON: My point is that it's speculation as 22 to whether or not a definitive agreement would ever be 23 reached. Remember, Your Honor, you have already held and 24 it's the law of this case that at the conclusion of the LOI 25 period there were many open issues and therefore there is no JCL 17 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 18 Proceedings 1 enforceable contract here. This is only a preliminary 2 agreement. 3 THE COURT: Yes, but I didn't rule as to why that 4 was the case. I mean, so that's what I'm saying is that you 5 guys have two different factual stories. Your factual story 6 is, look, Judge, while there may be prima facie evidence of 7 a breach and in fact there may have been a breach, they 8 still can't prove that the ultimate agreement would have 9 been entered into which I take it is why they're not 10:12:49 10 entitled to lost profits and other things, but I'm not sure 11 that you can say that as a matter of law having breached the 12 agreement taking what they're saying as true. 13 MR. LEFTON: I'm saying, Your Honor, that causation 14 requires it to be the but for cause. 15 THE COURT: Yes, and I think that -- 16 MR. LEFTON: And here when Cresco itself on 17 March 22nd has -- is looking for guidance from the 18 Department of Health and then on March 26th Cresco -- I'm 19 sorry -- on April 4th after the LOI expired, Mr. Bachtell, 10:13:30 20 the CEO of Cresco, writes to Fiorello, "I agree this process 21 is taking longer than either party wants, but I believe both 22 sides have been diligent and I know the delays have been 23 related to tricky tax structuring, responses from DOH, 24 counsel's schedules, and New York unforeseeable weather last 25 month." JCL 18 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 19 Proceedings 1 The responses from DOH was a reference to the 2 request first made on March 22nd. That left only seven days 3 to get those responses from DOH as to critical issues of 4 ownership structure, deal structure and that affected the 5 tax structure. 6 THE COURT: The deal could have been written up in 7 an afternoon. I mean, the deal could have been written up 8 in an afternoon if they got the information that they -- I 9 mean, I don't think -- 10:14:26 10 MR. LEFTON: Your Honor, that's speculation, Your 11 Honor. Maybe it could have, maybe it couldn't. 12 THE COURT: It's a factual issue as to why they may 13 not entitled to summary judgment today is what it is. Is 14 that you've got an argument that they're not entitled to 15 summary judgment and, okay, I'm hearing that argument, but I 16 don't think that you necessarily get to prove that as a 17 matter of law that they can't prove -- and even still if you 18 breach, I still don't understand why you're not of the view 19 that -- I mean, you're going to the heart of the Goodstein 10:15:17 20 decision in the sense that breach of the No-Shop Provision 21 are you saying that they're not entitled to even 22 out-of-pockets as it relates to your alleged breach of the 23 No Shop? I mean, I thought your point in bringing up 24 Goodstein was they're not entitled to lost profits which you 25 equate with replacement transaction. We can get to that JCL 19 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 20 Proceedings 1 because there is no evidence that there would have been an 2 agreement that was entered into and they can't prove 3 causation, but that's a different issue than whether or not 4 was a breach of the binding No-Shop Provision; right? 5 Aren't you conflating two different things? 6 MR. LEFTON: I agree with that, Your Honor. It is 7 a different issue than whether there is a breach. My point 8 is that the issue of whether they would have been a 9 definitive agreement is just a further instance of 10:16:11 10 speculation. The DOH did not respond or give the guidance 11 that Cresco felt critical before the LOI expired because of 12 Cresco's own delays. But Your Honor is right, I think, that 13 the issue of whether or not if there was a breach that 14 caused the failure of the definitive agreement, and that's 15 the issue, not whether there was simply a breach, but 16 whether or not that breach caused the failure to reach a 17 definitive agreement. That is speculation, but even if that 18 occurred, Your Honor, that would only entitle Cresco to, at 19 most, out-of-pocket reliance damages and that's the second 10:16:57 20 branch of our motion. And the reason for that is as Your 21 Honor has already held this was a preliminary agreement with 22 open issues plus preliminary agreement required several 23 levels of third party approval. If a definitive agreement 24 had been reached it would be no more than an offer to be 25 made to shareholders to agree to in a rising market, a JCL 20 of 79 FILED: NEW YORK COUNTY CLERK 12/08/2022 11:40 AM INDEX NO. 652343/2018 NYSCEF DOC. NO. 720 RECEIVED NYSCEF: 12/08/2022 21 Proceedings 1 volatile market and it would have been a below market offer 2 at that point with no -- and one of the issues that had not 3 been resolved was interest rate. One of the issues -- 4 because this was a three -- a two-year obligation. 5 Another issue on this two-year obligation was 6 security for the installment payments. Another issue that 7 had not been resolved Cresco hadn't even decided what class 8 -- it had four classes of stock -- what class of stock and 9 the likes attended to that class, the Fiorello equity could 10:18:03 10 have been exchanged for the option of Fiorello shareholders. 11 So the whole exchange process had not been negotiated and 12 worked out in part because Cresco never made an offer as to 13 say this stock with these rights. 14 So all these open issues if they had been resolved 15 and there was so many they could not be resolved in the for 16 shortened and negotiation period where Cresco was busy 17 negotiating with other states -- retailers and other states 18 and busying -- Cresco was negotiating with Liberty. That's 19 why Liberty reached out to Fiorello. They wanted to buy 10:18:49 20 Liberty. You then have th