Preview
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Exhibit B
Proposed Second Amended Complaint Showing Changes to
be Made to the Operative Complaint, Without Exhibits
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK: COMMERCIAL DIVISION
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CRESCO LABS NEW YORK, LLC, a New :
York limited liability company, and CRESCO : Hon. Andrew Borrok
LABS , LLC, an Illinois limited liability :
company, : SECOND AMENDED
: COMPLAINT
Plaintiffs, :
:
v. :
:
FIORELLO PHARMACEUTICALS, INC., a :
New York corporation, ERIC SIROTA, an :
individual, and SUSAN YOSS, an individual, :
and JOHN DOES 1–10, :
:
Defendants. :
----------------------------------------------------------- X
COMPLAINT AND JURY DEMAND
Plaintiffs Cresco Labs New York , LLC and Cresco Labs , LLC (together, “Cresco” or
“Plaintiffs”) bring this Second Amended Complaint against Defendants Fiorello
Pharmaceuticals, Inc. (“Fiorello”); Eric Sirota (“Sirota”), Fiorello’s co-CEO during the relevant
period; and Susan Yoss (“Yoss”), Fiorello’s other co-CEO; and John Does 1–10, various entities
that negotiated for the acquisition of Fiorello during the exclusive negotiations relevant period
agreed upon by Cresco and Fiorello. Plaintiffs allege as follows upon their own knowledge as to
themselves and their own acts and experiences and, as to all other matters, upon information and
belief, including investigation conducted by their attorneys.
NATURE OF THE ACTION
1. Cresco, a medical cannabis company operating in several states nationwide,
brings this breach of contract action against Fiorello, a New York-licensed medical cannabis
company, to remedy Fiorello’s breach of the “no-shop” provision in a stock purchase
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agreementletter of intent, which breach caused Cresco to contract at pay a significantly higher
cost to acquire a New York-licensed company as a replacement for Fiorello and allowed Fiorello
to secure a , Sirota, and Yoss to obtain significantly higher price profit and other benefits for
themselves – precisely the risk the no-shop provision was intended to prevent.
2. More specifically, in February 2018, Fiorello and Cresco entered into a binding
“Equity Purchase Agreement Letter of Intent” (the “Agreement,” attached as Exhibit 1), pursuant
to which Cresco was to pay at least $22.5 million to acquire all the stock of Fiorello. The
Agreement included an exclusive bargaining provision (the “No-Shop Provision”) under which
Fiorello and Cresco mutually agreed not to pursue a similar transaction with a third party while
they worked to enter into a more complete agreement.
3. Upon information and belief, shortly Shortly after execution of the Agreement,
Fiorello breached the no-shop provision when it began negotiating with a third partyFiorello—
through its co-CEOs Sirota and Yoss—breached the No-Shop Provision when it affirmatively
pursued and discussed a transaction with multiple third-parties and ultimately entered into an
alternative transaction with one of those third-parties. In an attempt to escape its obligations to
Cresco while negotiating with talking to the third partyparties, Fiorello slow-walked the
memorialization of a final agreement with Cresco; then falsely claimed , prematurely proclaimed
that the Agreement had expired; and also falsely accused Cresco of breach. Fiorello ultimately
entered into an agreement with another buyer for a significantly higher price.was ultimately
acquired by Green Thumb Industries, Inc. (“GTI”) for over $20 million more than Fiorello’s
shareholders would have received under the Agreement with Cresco.
4. Fiorello’s transaction with GTI closed in August 2019, and Fiorello’s
shareholders received cash and stock directly from GTI as a result of the transaction. Defendants
Sirota and Yoss each received in excess of $10 million in cash and stock from the transaction,
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and in combination received about half of the improper gain that Fiorello achieved through its
breach. Sirota and Yoss also received substantial personal benefits from the transaction that they
would not have received under the Agreement with Cresco, including more than $650,000 for
“consulting services,” an annual salary, and broad indemnification for this litigation.
5. 4.In the meantime, Cresco faithfully abided by its obligations under the
Agreement, including its agreement not to pursue another New York company amidst the rapidly
rising market value for a New York-licensed medical cannabis company. As a result, Cresco
was forced to contract to pay a far higher price for a replacement transaction with another
company.
6. 4.Cresco now respectfully requests damages from Fiorello for breach of the
Agreement, and from Fiorello’s co-CEOs Sirota and Yoss for their unjust enrichment as a result
of causing Fiorello’s breaches, and from John Does 1–10 for their tortious interference with the
binding no-shop and confidentiality provisions in the Agreement.
PARTIES
7. 5.Plaintiff Cresco Labs, LLC is a limited liability company existing under the
laws of the State of Illinois. Cresco operates a vertically integrated supply chain, including
cultivation, manufacturing, distribution, and retail, and is continually looking to expand its
footprint in this relatively young and extremely competitive industry. Cresco through its
affiliates, holds an interest in medical cannabis licenses and cultivation facilities in in various
states, including Arizona, California, Illinois, Massachusetts, Nevada, New York, Ohio, and
Pennsylvania. In these states, Cresco, through its affiliates, conducts operations that may include
cultivation, manufacturing, distribution and retail.
8. 6.Plaintiff Cresco Labs New York, LLC is a limited liability company existing
under the laws of the State of New York, and a wholly owned subsidiary of Cresco Labs, LLC.
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Cresco Labs New York, LLC was created to facilitate the transaction with Fiorello and serve as
Cresco’s New York-licensed subsidiary.
9. 7.Defendant Fiorello Pharmaceuticals, Inc. is a corporation existing under the
laws of the State of New York. Fiorello is best described as a fledgling operation, with a
presence only in New YorkDuring the relevant period, Fiorello was a closely-held corporation
owned by 17 shareholders. Fiorello possesses one of the ten licenses that permit operation of a
medical cannabis business in New York Statethe State of New York, and it has a presence only in
New York. In August 2019, Fiorello became a wholly-owned subsidiary of GTI, a Canadian
corporation with headquarters in Chicago, Illinois.
10. 8.Defendant Eric Sirota is an individual residing in Florida. At all relevant times,
Sirota was a resident of New York and co-CEO of Fiorello Pharmaceuticals, Inc, member of the
Board of Directors, and shareholder of Fiorello. On information and belief, Sirota remains a
member of Fiorello’s Board of Directors.
11. 9.Defendant Susan Yoss is an individual residing in Florida. At all relevant times,
Yoss was a resident of New York and co-CEO of Fiorello Pharmaceuticals, Inc.member of the
Board of Directors, and shareholder of Fiorello. On information and belief, Yoss remains a
member of Fiorello’s Board of Directors.
10. Defendant John Does 1–10 are individuals or business entities that, beginning in
or around March 2018 and including through the present, entered into negotiations with Fiorello
Pharmaceuticals, Inc. regarding the sale of Fiorello’s equity or assets despite Fiorello’s binding
obligations to Cresco not to discuss or enter into such a transaction. Despite Cresco’s diligent
efforts to identify Defendant John Does 1–10, including its own investigation and investigation
conducted on its behalf by its attorneys, requests for information from Fiorello and its counsel,
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and the like, Cresco currently does not know the true identities of every Defendant John Does 1–
10.
JURISDICTION AND VENUE
12. 11.This Court has jurisdiction over the defendants pursuant to CPLR §§ 301 and
302, as well as Judiciary Law § 140-b.
13. 12.Venue is proper in New York County pursuant to CPLR §§ 503(a) and (c).
FACTUAL BACKGROUND
14. 13.Cresco plans planned to become a publicly traded company in Canada in
December 2018. Because Cresco’s projected revenues, geographical footprint, and market reach
are all factors that will would affect its valuation at the time of the public listing, Cresco sought
to expand its business to additional states, including New York, prior to December 2018.
15. 14.Fiorello has a presence only in the State of New York. On information and
belief, Fiorello has no current operations to develop or sell medical cannabis products. In August
2017, the State of New York designated Fiorello as a “registered organization” entitled to receive
one vertically integrated license that allows for the cultivation and processing of medical
cannabis, as well as the establishment of four medical cannabis dispensary licenses in New York.
16. 15.In December 2017, Fiorello (through Sirota and Yoss) entered into negotiations
with Cresco for the sale of its equity, which would have given Cresco the right to apply for a
transfer of the license issued by the State of New York.
Plaintiffs Cresco and Defendant Fiorello Enter Into the Agreement
17. 16.On February 9, 2018, Fiorello’s board of directors approved directors—
comprised of Sirota, Yoss, and one outside director—approved the terms of the Agreement with
Cresco.
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18. 17.On February 1415, 2018, after extensive negotiations, Cresco and Fiorello
fully executed and entered into the Agreement, a contract through which Cresco would acquire
100% ownership in the outstanding shares of Fiorello. See Exhibit 1. Sirota executed the
Agreement on behalf of Fiorello. At the time, Fiorello had 17 shareholders, with close to 50% of
the issued and outstanding shares held by Sirota and Yoss. Many of the shareholders were
friends, family members, or former colleagues of Sirota or Yoss.
19. 18.To ensure the parties’ mutual commitment to consummating the transaction,
the Agreement includes the No-Shop Provision:
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.
Agreement at 4. Thus, both parties mutually agreed to eliminate the risk that the price for
a New York-licensed company would increase or decrease while the parties were
finalizing the “Definitive Agreement” (as defined in the Agreement) and the closing
documents.
20. 19.In addition to the No-Shop Provision, the Agreement provides that its terms
“are intended to be binding on the Parties.” Id. at 1. The Agreement further refers to its “binding
nature” and its “binding provisions.” Id. at 3.
21. 20.The Agreement also memorializes Cresco and Fiorello’s binding agreement on
the essential terms of the transaction: the basic structure and price of the acquisition. As
consideration for the acquisition of 100% of the issued and outstanding shares of Fiorello,
Cresco committed to pay Fiorello $22,500,000, among other promises and conditions. The
Agreement specified that the payment was to be made in three installments: $10,000,000 on the
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date of the closing of the Definitive Agreement; $6,250,000 on the first anniversary of the
closing; and $6,250,000 on the second anniversary of the closing. Cresco also agreed to pay
Fiorello $500,000 as a good faith payment upon the execution and delivery of the Agreement.
22. 21.The Agreement also provided for an additional contingent payment that Cresco
would make to Fiorello if the State of New York legalized adult sales of marijuana on or before
the fourth anniversary of the closing of the Definitive Agreement.
23. 22.The Agreement does not include any expiration or termination provision.
Instead, the Agreement states only that the parties would use their “best efforts” to conclude the
Definitive Agreement within thirty business days—by days from the date of execution—by the
close of business on March 2930, 2018—and a closing date “on or about” April 15, 2018. Id. at
2, 4.
24. 23.The aspirational closing date in the Agreement was subject to conditions
precedent: the exact closing date would be “subject to the completion of the Parties’ satisfactory
due diligence and the approval of the respective Parties’ boards of directors and
shareholders/members and the [New York State Department of Health].” Id. at 3. Cresco
committed to provide Fiorello with a due diligence list and to assist with Fiorello’s due diligence
by providing “whatever relevant materials and documentation Fiorello may reasonably request.”
Id. at 4. Both parties agreed to “endeavor to complete their respective due diligence reviews as
promptly as practicable.” Id. at 4.
25. The Agreement also included confidentiality provisions, which required the
parties to keep confidential “[t]he execution of this LOI and the contemplated completion of this
transaction.” Id. at 5 (the “Confidentiality Provision”).
26. 24.The Agreement also provided that the defendants Yoss and Sirota would
receive compensation and continued health benefits for a period of twenty-four months under
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consulting agreements with Fiorello. Id. at Cresco. Id. at 2. Sirota and Yoss had heavily
negotiated the amount of compensation they would receive under the consulting agreements, and
ultimately agreed to a lower amount than they had sought. On or around February 15, 2018,
Sirota stated that he and Yoss were “uncomfortable” with the amount of consulting compensation
they would receive from Cresco, but they nonetheless executed a term sheet under which Cresco
would make monthly payments of $6,000 to Sirota and Yoss for a period of twenty-four months
(or a total of $144,000 to each of them). See Term Sheet for Consulting Agreements, attached as
Exhibit 2.
Fiorello Enters Into Negotiations with Third Parties
25.On information and belief, soon after the February 14, 2018 execution of the
Agreement, Fiorello began discussing the potential sale of a majority equity stake in Fiorello to
one or more Defendant John Does 1–10.
27. Sirota and Yoss did not inform Fiorello’s shareholders that they had signed the
Agreement contemplating the sale of Fiorello’s shares, even though their fiduciary duties
required them to do so. Nor did Sirota and Yoss inform Fiorello’s shareholders that Fiorello was
bound by the No-Shop Provision.
28. Instead, soon after the February 15, 2018 execution of the Agreement, Sirota and
Yoss, purportedly acting for Fiorello but prioritizing their own interests, affirmatively pursued
and discussed a transaction with multiple third-parties other than Cresco in an effort to increase
the amount of compensation they would personally receive from a transaction. Fiorello
ultimately entered into and consummated an alternative sale transaction with one of those third-
parties for a purchase price that was significantly higher than that agreed to in the Agreement
with Cresco, reaping a substantial profit for Fiorello, Sirota, and Yoss and substantial additional
personal benefits for Sirota and Yoss.
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29. On the same day that Fiorello executed the Agreement with Cresco, Sirota and
Yoss began discussing the sale of a majority equity stake in Fiorello with companies other than
Cresco. On February 15, 2018, within hours after it executed the Agreement, Sirota and Yoss
spoke to the CEO of Liberty Health Sciences, Inc. (“Liberty”). Liberty is a Florida-based
medical cannabis company that was introduced to Fiorello in January 2018 as a company that “is
looking at a number of potential acquisitions in the US market” and that specifically had interest
in entering the New York market.
30. On February 22, 2018, Sirota and Yoss participated in a breakfast meeting with
representatives from Liberty, one of numerous conversations between Fiorello and Liberty
during the period when Fiorello was obligated not to discuss a transaction with anyone other than
Cresco.
31. On March 2, 2018, Liberty’s CEO texted Sirota: “We are sending you an
unsolicited int hr [sic] next 24 hours. Should I send to the board or to you.” Within minutes,
Sirota responded by calling Liberty’s CEO.
32. One day later, on March 3, 2018, Liberty submitted a letter of intent to Fiorello
with an offer that included a higher total purchase price ($27.5 million) and a higher upfront
payment ($22.5 million by the closing date) than the terms of the Agreement with Cresco. The
cover email made clear that Liberty “is interested in the 100% acquisition of Fiorello
Pharmaceuticals.”
33. Although Sirota responded in writing that “the [Fiorello] Board is unable to
entertain the current offer until at least March 30th,” Sirota and Yoss continued to discuss a
transaction with Liberty. Sirota and Yoss had numerous additional conversations with Liberty’s
CEO over the next ten days. During this period, Liberty’s CEO also sent text messages to Sirota,
including messages indicating that Liberty was “thinking about” proposals made by Sirota.
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34. Liberty submitted a revised letter of intent to Sirota and Yoss on March 16, 2018.
Internal emails show that Liberty understood that it should send the revised offer to “both Eric
[Sirota] and Susan [Yoss] to make it appear as if we have not had discussions.” On information
and belief, Liberty wanted to create a misleading paper trail of its discussions with Fiorello based
on guidance Liberty received from Sirota and Yoss.
35. On March 17, 2018, Yoss wrote to a Fiorello shareholder that Fiorello was
“Moving ahead on Cresco. The other party is still interested, but it is getting a bit too
complicated.”
Fiorello Discusses a Transaction with GTI
36. During the period when Fiorello was obligated to discuss a transaction solely with
Cresco, Sirota and Yoss also began to discuss the sale of a majority equity stake in Fiorello with
GTI, the company that ultimately acquired Fiorello. GTI is, like Cresco, a vertically-integrated
medical cannabis company with operations in multiple states.
37. In mid-March 2018, while the No-Shop Provision was in effect, GTI’s then-
Chairman Ben Kovler sent several email inquiries to Sirota and Yoss. Sirota and Yoss knew that
GTI was interested in acquiring a New York-licensed medical cannabis company. Accordingly,
in light of the No-Shop Provision, Sirota and Yoss ought to have either ignored those inquiries or
informed GTI that Fiorello could not discuss a transaction.
38. Instead, on March 20, 2018, Sirota and Yoss affirmatively called Kovler, and they
had two separate phone calls that day. Sirota and/or Yoss made statements that caused GTI to
make a new and higher offer ($25 million) to Sirota and Yoss within hours. This discussion
breached the terms of the No-Shop Provision.
39. On information and belief, GTI had not begun to draft a formal offer to acquire
Fiorello prior to the outreach by Sirota and Yoss. The amount of GTI’s offer was exactly $2.5
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million more than the amount in the Agreement with Cresco, even though GTI expected it could
acquire Fiorello for a lower amount just before Fiorello executed the Agreement with Cresco –
suggesting that Sirota and Yoss further breached the Confidentiality Provision of the LOI by
informing GTI of the price set forth in that agreement.
40. Like Liberty, GTI was also aware of the importance of avoiding the appearance of
discussions with Fiorello. Although Kovler sent the offer to Sirota and Yoss within hours after
they spoke, Kovler’s cover email falsely asserted that “we haven’t spoken in a while.” In his
deposition, Kovler acknowledged that his use of that phrase was “strange” and “doesn’t totally
tie out” given that he had spoken with Sirota and Yoss that day. Moreover, notwithstanding the
more recent March 2018 emails that Kovler had sent to Sirota and Yoss, Kovler sent the offer in
response to a December 2017 email chain, creating the false impression that he had not had more
recent communications. On information and belief, Kovler, like Liberty’s CEO, took these steps
to create a misleading paper trail based on his discussions with Sirota and Yoss.
41. On March 22, 2018, Sirota disclosed to Kovler a material term of the Agreement
with Cresco—the date that was thirty business days after its execution and therefore the fast-
approaching last day of exclusivity. This disclosure was a further breach of the No-Shop
Provision and the related Confidentiality Provision.
42. The offers that Sirota and Yoss solicited from Liberty and GTI during the period
when Fiorello was obligated to discuss a transaction only with Cresco included “more desirable
financial terms with regard to the timing and amount of upfront payments” than the Agreement
with Cresco. Affidavit of Eric Sirota (NYSCEF Doc. No. 22) ¶ 52. As a result, on account of
Fiorello’s breach of the No-Shop Provision, Sirota and Yoss “understood that those other offers
made approval of any transaction with Cresco on the financial terms set forth in the LOI less
likely.” Id. ¶ 53.
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Fiorello Covers Up Its Breach of the No-Shop Provision
43. 26.To Sirota and Yoss never informed Cresco that Fiorello had received
competing offers. Instead, to cover up this ongoing breach of the No-Shop Provision and
attempt to escape its Fiorello’s obligations under the Agreement, Fiorello , through co-CEOs
Sirota and Yoss, delayed performance of its obligations to Cresco, falsely claimed prematurely
proclaimed that the Agreement and No-Shop Provision had expired, and falsely accused Cresco
of breach.
44. 27.For example, contrary to its agreement to “endeavor to complete their
respective due diligence reviews as promptly as practicable,” Agreement at 3, Fiorello delayed
providing the required due diligence materials to Cresco until March 10, 2018, nearly one month
after the Agreement was executed. By that point, Sirota and Yoss had spoken with Liberty on
numerous occasions.
45. 28.Similarly, in breach of its agreement to “in good faith prepare and execute
definitive agreements,” id. at 3, Fiorello delayed providing edits to a draft Definitive Agreement.
It wasn’t until March 26, 2018—approximately three weeks after receiving Cresco’s draft—that
Fiorello provided its first redline markup of the draft Definitive Agreement. By that point, Sirota
and Yoss had caused Fiorello to obtain multiple higher offers from Liberty and GTI.
Furthermore, Fiorello’s March 26 redline of the draft Definitive Agreement introduced several
material changes to terms that had already been agreed upon and incorporated into the
Agreement.
46. 29.Beginning in April 2018—more than 45 days after the Agreement had been
executed—Fiorello took a new tack: it argued for the first time that the Agreement (and/or the
No-Shop Provision) had now expired and stated that any continued work toward a Definitive
Agreement would require an extension executed by the partiesOn March 29, 2018, Fiorello
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prematurely proclaimed to Cresco that the Agreement had expired. As noted above, however,
thirty business days after the Agreement has no expiration provision’s execution occurred no
earlier than March 30, 2018, and in any event, Fiorello’s delaying tactics precluded it from
relying on any such provision. Fiorello’s premature pronouncement was followed by a flurry of
conversations with Liberty and GTI while the No-Shop Provision remained in effect.
47. On March 29, 2018, a few minutes after Fiorello’s counsel proclaimed that the
Agreement had expired, Sirota contacted Liberty’s CEO.
48. On the morning of March 30, 2018—before the end of the thirtieth business day
after the Agreement’s execution—Sirota had multiple phone conversations with Kovler and
Liberty’s CEO.
49. 30.On April 6, 2018, Fiorello claimed for the first time that its board of directors
had determined that a new agreement would need to be executed.
50. 31.On April 8, 2018, Fiorello offered yet another excuse for escaping its
obligations under the Agreement, making a false accusation that Cresco had breached its
confidentiality obligations under the Agreement.
51. 32.Then, on April 12, 2018, Fiorello’s counsel sent an email stating that Fiorello
was “ending discussion” with Cresco and offering to return Cresco’s good faith payment.
Fiorello still has not returned the good faith payment.
52. 33.Finally, Sirota and Yoss contacted Cresco and confirmed for the first time that
they had communicated with third parties regarding other offers to purchase Fiorello’s equity and
obtain its license (in violation of the No-Shop Provision) and that the Fiorello board was not sure
if it would continue to pursue a transaction with Cresco.
Fiorello Enters into an Agreement with a Third Party
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53. 34.In open court on May 22, 2018, counsel for Fiorello stated that Fiorello was
“negotiating with other prospective suitors who have actually offered 68 percent more than the
price in the - – out of line with Cresco.” May 22, 2018 Mot. to To Seal Tr., attached hereto as
Exhibit 23, at 7:17-19.
54. 35.On June 14, 2018, Fiorello’s counsel sent Cresco an e-mail soliciting “Best and
Final” bids for “a potential acquisition of 100% of the outstanding capital stock in of the
Company,” to be submitted no later than June 22, 2018. The purchase of capital stock proposed
in the solicitation is exactly what the Agreement gave Cresco the exclusive right to negotiate.
And this sort of auctioning off of the Company during a rising market—clearly designed to pit
potential suitors against each other to drive up the sale price as high as possible—is exactly what
Cresco negotiated to avoid through the No-Shop Provision.
55. 36.Ultimately, Fiorello entered into a merger agreement to sell its shares to a
Defendant John Doewith GTI. On June 29, 2018, Fiorello’s shareholders consented to and
joined in the merger agreement, approving the sale of their shares to a Defendant John DoeGTI.
See “Consent of the Shareholders,” attached as Exhibit 34; “Joinder Agreement,” attached as
Exhibit 4. 5. Fiorello and GTI amended the merger agreement in December 2018.
56. The merger transaction between GTI and Fiorello closed on or around August 23,
2019, soon after approval from the New York State Department of Health. See Aug. 26, 2019
GTI Canadian Securities Exchange Filing, attached as Exhibit 6. On or around that time,
Fiorello’s shareholders received approximately $43 million in cash directly from GTI, plus
equity in GTI worth at least $14 million. This is approximately 60% more than the base
purchase price in the Agreement with Cresco. Yoss received approximately $12 million in cash
and $4 million in equity and Sirota received approximately $9 million in cash and $3 million in
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equity directly from GTI from the completed sale of Fiorello to GTI. In combination, Sirota and
Yoss received about half of the improper gain that Fiorello achieved through its breach.
57. In addition to their share of the purchase price, Sirota and Yoss negotiated for and
received substantial personal benefits from the merger transaction with GTI that they would not
have received under the Agreement with Cresco. For example, Sirota and Yoss received
$327,150 and $352,950, respectively, for “consulting services,” far in excess of the consulting
payments Cresco agreed to pay them; Sirota and Yoss obtained health and welfare benefits and
annual salaries of $150,000, even though on information and belief GTI did not want to employ
them; Sirota and Yoss and other Fiorello shareholders received a broad indemnification from GTI
for all liabilities and expenses of this litigation, including attorneys’ fees; Sirota and Yoss ensured
that they continued to hold seats on Fiorello’s board of directors; and Sirota and Yoss secured the
appointment of a company they formed to serve as shareholder representative. In addition, after
GTI issued a line of credit to Fiorello, and while GTI was controlling the business, Fiorello
added Andrea Yoss—on information and belief, the daughter of Susan Yoss—to the payroll with
an $80,000 salary.
37. The John Does would or should have learned of the Agreement’s existence,
including its requirement that Fiorello would negotiate exclusively with Cresco. By May 22,
2018, these facts were made public. Nonetheless, Defendant John Does 1–10 continued to
discuss and negotiate with Fiorello to acquire its shares for themselves and to Cresco’s detriment.
Defendant John Does 1–10’s willingness to do so induced Fiorello to breach the binding No-
Shop Provision.
58. 38.Because Fiorello breached the No-Shop Provision and because Defendant John
Does 1–10 induced Defendant Fiorello to do soDefendants Sirota and Yoss personally induced
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Fiorello’s breach of contract for their own personal profit, Cresco was not able to purchase
Fiorello’s shares pursuant to the Agreement.
Fiorello’s Breach Requires Cresco to Purchase A Different Company
59. 39.While Fiorello breached the No-Shop Provision, Cresco complied with its
obligations by refraining from “discuss[ing] or enter[ing] into any transaction with any third-
party involving . . . the purchase of any equity interest in or assets of another medical marijuana
company in the State of New York.” Agreement at 4. Cresco did so in spite of the fact that
acquiring a New York license quickly was of chief importance to the company and even as the
price of acquiring other New York-licensed medical cannabis companies was sharply rising.
Because Cresco was bound by the No-Shop Provision in the Agreement, Cresco gave up the
opportunity to more quickly or more cheaply acquire another New York medical marijuana
company.
60. 40.In July 2018, after Fiorello had executed an agreement with a third party,
Cresco began to negotiate to acquire another New York-licensed medical cannabis company.
61. 41.In October 2018, Cresco executed a merger agreement to acquire that
company. The price , and the transaction closed in October 2019 after approval from the New
York State Department of Health. The amount of consideration that Cresco agreed to pay paid to
acquire a company comparable to Fiorello was substantially significantly more than it would
have paid to acquire Fiorello under the terms of the Agreement, and over $50 million more than
the amount of consideration GTI actually provided to purchase Fiorello. The increased cost was
a direct result of the significant increase in the value of medical cannabis companies with a New
York license during the period when Cresco complied with its obligations under the No-Shop
Provision, and the fact that Fiorello’s breaches made Cresco’s target the only remaining New
York-licensed cannabis company available for acquisition.
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FIRST CLAIM FOR RELIEF
Breach of No-Shop Provision
(Against Defendant Fiorello)
62. 42.Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
63. 43.On February 1415, 2018, Plaintiffs Cresco and Defendant Fiorello fully
executed and entered into the Agreement, which included the No-Shop Provision. See Exhibit 1.
64. 44.As alleged more fully above, the No-Shop Provision required that Fiorello not
discuss or enter into any transaction in lieu of the agreed-upon transaction with Cresco. In
consideration for this promise, Cresco similarly agreed, among other things, not to discuss or
enter into any such transaction.
65. 45.Plaintiffs Cresco fulfilled their obligations under the No-Shop Provision by
refraining from engaging in discussions or transactions with other New York medical cannabis
companies.
66. 46.Defendant Fiorello breached its obligations under the No-Shop Provision by
engaging in such discussions, and ultimately by entering into a transaction for the sale of Fiorello
to a third party.
67. 47.As a result of Fiorello’s breach, Plaintiffs have been damaged by, among other
things, entering into a more expensive replacement transaction and lost profits from their delay
in acquiring a New York license, in an amount to be proved at trial.
SECOND CLAIM FOR RELIEF
Breach of Contract for the Sale of Fiorello’s Stock
(Against Defendant Fiorello)
48. Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
49. On February 14, 2018, Plaintiffs Cresco and Defendant Fiorello fully executed
and entered into the Agreement. See Exhibit l.
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50. The Agreement expressly evidences the parties’ mutual intent to be bound by its
terms. It explicitly states that it is “binding on the Parties” and refers to its own “binding nature”
and “binding provisions.”
51. The Agreement provides that Cresco would acquire 100% of the shares of Fiorello
in exchange for a minimum of $22,500,000 in consideration. The Agreement further required
that Cresco would pay Fiorello $500,000 as a good faith payment.
52.The Agreement was subject to conditions precedent to performance: the completion of
due diligence, approval by the parties’ boards of directors and shareholders/members, and
approval of the New York State Department of Health.
53. As described herein, Defendant Fiorello frustrated the conditions precedent by
delaying completion of due diligence, by falsely accusing Cresco of breach, by falsely claiming
the Agreement had terminated, and by discussing a transaction for the sale of its equity to a third
party in violation of the No-Shop Provision without ever seeking the approval of shareholders or
the Department of Health for the contract with Cresco.
54. Fiorello then proceeded to enter into an agreement to sell 100% of its stock to a
third party in breach of its contract with Cresco.
55. In addition, Fiorello failed to refund the good faith payment to Cresco.
56. Plaintiffs Cresco fulfilled their obligations under the contract by making the
required good faith payment and by taking the necessary steps toward meeting the conditions
precedent of due diligence and board and shareholder approval. Cresco timely provided to
Fiorello the due diligence list, the documents Fiorello requested in order to perform its own due
diligence, and drafts of the Definitive Agreement.
57. Plaintiffs have been damaged as a result of Defendant Fiorello’s breach of the
Agreement in an amount to be proved at trial.
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THIRD CLAIM FOR RELIEF
Tortious Interference with Contract
(Against Defendant John Does 1–10Defendants Sirota and Yoss)
68. 58.Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
59. Plaintiffs Cresco and Defendant Fiorello fully executed and entered into a
contract, in the form of a binding Agreement, on February 12, 2018. See Exhibit 1.
60. Defendant John Does 1–10, through their own due diligence and discussions with
Fiorello, knew or should have known of the Agreement’s existence, including its terms providing
for exclusive negotiations between Fiorello and Cresco. In any event, by May 22, 2018, the
existence of the Agreement was made public.
61. Notwithstanding these terms calling for exclusivity, Defendant John Does 1–10
interjected themselves into the negotiations for the license. In doing so, they intentionally
procured Fiorello’s breach of the Agreement’s exclusivity terms and ultimately the sale terms.
62. Because their own economic interest is insufficient, Defendant John Does 1–10
had no justification for their interference with the binding Agreement.
63. Until Defendant John Does entered into an agreement to acquire Fiorello’s stock,
Plaintiffs Cresco were ready, willing, and able to perform all future obligations under the
contract, including finalizing and executing the Definitive Agreement.
64. As a result of Defendant John Does 1–10’s conduct, Cresco has suffered damages
in an amount to be proven at trial.
FOURTH CLAIM FOR RELIEF
Unjust Enrichment
(Against Defendants Sirota and Yoss)
65. Plaintiffs incorporate the foregoing allegations as if fully set forth herein.
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66. As substantial shareholders in Fiorello, Sirota and Yoss stand to benefit from
Fiorello’s breaches of contract by receiving a large proportion of the additional compensation
that Fiorello would receive from selling itself to a third party rather than to Cresco.
67. These benefits will come at Cresco’s expense, because just as Sirota and Yoss
capitalized on rising market pric
Preview
FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 Exhibit B Proposed Second Amended Complaint Showing Changes to be Made to the Operative Complaint, Without Exhibits FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION ----------------------------------------------------------- X Index No. 652343/2018 CRESCO LABS NEW YORK, LLC, a New : York limited liability company, and CRESCO : Hon. Andrew Borrok LABS , LLC, an Illinois limited liability : company, : SECOND AMENDED : COMPLAINT Plaintiffs, : : v. : : FIORELLO PHARMACEUTICALS, INC., a : New York corporation, ERIC SIROTA, an : individual, and SUSAN YOSS, an individual, : and JOHN DOES 1–10, : : Defendants. : ----------------------------------------------------------- X COMPLAINT AND JURY DEMAND Plaintiffs Cresco Labs New York , LLC and Cresco Labs , LLC (together, “Cresco” or “Plaintiffs”) bring this Second Amended Complaint against Defendants Fiorello Pharmaceuticals, Inc. (“Fiorello”); Eric Sirota (“Sirota”), Fiorello’s co-CEO during the relevant period; and Susan Yoss (“Yoss”), Fiorello’s other co-CEO; and John Does 1–10, various entities that negotiated for the acquisition of Fiorello during the exclusive negotiations relevant period agreed upon by Cresco and Fiorello. Plaintiffs allege as follows upon their own knowledge as to themselves and their own acts and experiences and, as to all other matters, upon information and belief, including investigation conducted by their attorneys. NATURE OF THE ACTION 1. Cresco, a medical cannabis company operating in several states nationwide, brings this breach of contract action against Fiorello, a New York-licensed medical cannabis company, to remedy Fiorello’s breach of the “no-shop” provision in a stock purchase 4863-4202-6315.v10 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 agreementletter of intent, which breach caused Cresco to contract at pay a significantly higher cost to acquire a New York-licensed company as a replacement for Fiorello and allowed Fiorello to secure a , Sirota, and Yoss to obtain significantly higher price profit and other benefits for themselves – precisely the risk the no-shop provision was intended to prevent. 2. More specifically, in February 2018, Fiorello and Cresco entered into a binding “Equity Purchase Agreement Letter of Intent” (the “Agreement,” attached as Exhibit 1), pursuant to which Cresco was to pay at least $22.5 million to acquire all the stock of Fiorello. The Agreement included an exclusive bargaining provision (the “No-Shop Provision”) under which Fiorello and Cresco mutually agreed not to pursue a similar transaction with a third party while they worked to enter into a more complete agreement. 3. Upon information and belief, shortly Shortly after execution of the Agreement, Fiorello breached the no-shop provision when it began negotiating with a third partyFiorello— through its co-CEOs Sirota and Yoss—breached the No-Shop Provision when it affirmatively pursued and discussed a transaction with multiple third-parties and ultimately entered into an alternative transaction with one of those third-parties. In an attempt to escape its obligations to Cresco while negotiating with talking to the third partyparties, Fiorello slow-walked the memorialization of a final agreement with Cresco; then falsely claimed , prematurely proclaimed that the Agreement had expired; and also falsely accused Cresco of breach. Fiorello ultimately entered into an agreement with another buyer for a significantly higher price.was ultimately acquired by Green Thumb Industries, Inc. (“GTI”) for over $20 million more than Fiorello’s shareholders would have received under the Agreement with Cresco. 4. Fiorello’s transaction with GTI closed in August 2019, and Fiorello’s shareholders received cash and stock directly from GTI as a result of the transaction. Defendants Sirota and Yoss each received in excess of $10 million in cash and stock from the transaction, 2 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 and in combination received about half of the improper gain that Fiorello achieved through its breach. Sirota and Yoss also received substantial personal benefits from the transaction that they would not have received under the Agreement with Cresco, including more than $650,000 for “consulting services,” an annual salary, and broad indemnification for this litigation. 5. 4.In the meantime, Cresco faithfully abided by its obligations under the Agreement, including its agreement not to pursue another New York company amidst the rapidly rising market value for a New York-licensed medical cannabis company. As a result, Cresco was forced to contract to pay a far higher price for a replacement transaction with another company. 6. 4.Cresco now respectfully requests damages from Fiorello for breach of the Agreement, and from Fiorello’s co-CEOs Sirota and Yoss for their unjust enrichment as a result of causing Fiorello’s breaches, and from John Does 1–10 for their tortious interference with the binding no-shop and confidentiality provisions in the Agreement. PARTIES 7. 5.Plaintiff Cresco Labs, LLC is a limited liability company existing under the laws of the State of Illinois. Cresco operates a vertically integrated supply chain, including cultivation, manufacturing, distribution, and retail, and is continually looking to expand its footprint in this relatively young and extremely competitive industry. Cresco through its affiliates, holds an interest in medical cannabis licenses and cultivation facilities in in various states, including Arizona, California, Illinois, Massachusetts, Nevada, New York, Ohio, and Pennsylvania. In these states, Cresco, through its affiliates, conducts operations that may include cultivation, manufacturing, distribution and retail. 8. 6.Plaintiff Cresco Labs New York, LLC is a limited liability company existing under the laws of the State of New York, and a wholly owned subsidiary of Cresco Labs, LLC. 3 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 Cresco Labs New York, LLC was created to facilitate the transaction with Fiorello and serve as Cresco’s New York-licensed subsidiary. 9. 7.Defendant Fiorello Pharmaceuticals, Inc. is a corporation existing under the laws of the State of New York. Fiorello is best described as a fledgling operation, with a presence only in New YorkDuring the relevant period, Fiorello was a closely-held corporation owned by 17 shareholders. Fiorello possesses one of the ten licenses that permit operation of a medical cannabis business in New York Statethe State of New York, and it has a presence only in New York. In August 2019, Fiorello became a wholly-owned subsidiary of GTI, a Canadian corporation with headquarters in Chicago, Illinois. 10. 8.Defendant Eric Sirota is an individual residing in Florida. At all relevant times, Sirota was a resident of New York and co-CEO of Fiorello Pharmaceuticals, Inc, member of the Board of Directors, and shareholder of Fiorello. On information and belief, Sirota remains a member of Fiorello’s Board of Directors. 11. 9.Defendant Susan Yoss is an individual residing in Florida. At all relevant times, Yoss was a resident of New York and co-CEO of Fiorello Pharmaceuticals, Inc.member of the Board of Directors, and shareholder of Fiorello. On information and belief, Yoss remains a member of Fiorello’s Board of Directors. 10. Defendant John Does 1–10 are individuals or business entities that, beginning in or around March 2018 and including through the present, entered into negotiations with Fiorello Pharmaceuticals, Inc. regarding the sale of Fiorello’s equity or assets despite Fiorello’s binding obligations to Cresco not to discuss or enter into such a transaction. Despite Cresco’s diligent efforts to identify Defendant John Does 1–10, including its own investigation and investigation conducted on its behalf by its attorneys, requests for information from Fiorello and its counsel, 4 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 and the like, Cresco currently does not know the true identities of every Defendant John Does 1– 10. JURISDICTION AND VENUE 12. 11.This Court has jurisdiction over the defendants pursuant to CPLR §§ 301 and 302, as well as Judiciary Law § 140-b. 13. 12.Venue is proper in New York County pursuant to CPLR §§ 503(a) and (c). FACTUAL BACKGROUND 14. 13.Cresco plans planned to become a publicly traded company in Canada in December 2018. Because Cresco’s projected revenues, geographical footprint, and market reach are all factors that will would affect its valuation at the time of the public listing, Cresco sought to expand its business to additional states, including New York, prior to December 2018. 15. 14.Fiorello has a presence only in the State of New York. On information and belief, Fiorello has no current operations to develop or sell medical cannabis products. In August 2017, the State of New York designated Fiorello as a “registered organization” entitled to receive one vertically integrated license that allows for the cultivation and processing of medical cannabis, as well as the establishment of four medical cannabis dispensary licenses in New York. 16. 15.In December 2017, Fiorello (through Sirota and Yoss) entered into negotiations with Cresco for the sale of its equity, which would have given Cresco the right to apply for a transfer of the license issued by the State of New York. Plaintiffs Cresco and Defendant Fiorello Enter Into the Agreement 17. 16.On February 9, 2018, Fiorello’s board of directors approved directors— comprised of Sirota, Yoss, and one outside director—approved the terms of the Agreement with Cresco. 5 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 18. 17.On February 1415, 2018, after extensive negotiations, Cresco and Fiorello fully executed and entered into the Agreement, a contract through which Cresco would acquire 100% ownership in the outstanding shares of Fiorello. See Exhibit 1. Sirota executed the Agreement on behalf of Fiorello. At the time, Fiorello had 17 shareholders, with close to 50% of the issued and outstanding shares held by Sirota and Yoss. Many of the shareholders were friends, family members, or former colleagues of Sirota or Yoss. 19. 18.To ensure the parties’ mutual commitment to consummating the transaction, the Agreement includes the No-Shop Provision: 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. Agreement at 4. Thus, both parties mutually agreed to eliminate the risk that the price for a New York-licensed company would increase or decrease while the parties were finalizing the “Definitive Agreement” (as defined in the Agreement) and the closing documents. 20. 19.In addition to the No-Shop Provision, the Agreement provides that its terms “are intended to be binding on the Parties.” Id. at 1. The Agreement further refers to its “binding nature” and its “binding provisions.” Id. at 3. 21. 20.The Agreement also memorializes Cresco and Fiorello’s binding agreement on the essential terms of the transaction: the basic structure and price of the acquisition. As consideration for the acquisition of 100% of the issued and outstanding shares of Fiorello, Cresco committed to pay Fiorello $22,500,000, among other promises and conditions. The Agreement specified that the payment was to be made in three installments: $10,000,000 on the 6 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 date of the closing of the Definitive Agreement; $6,250,000 on the first anniversary of the closing; and $6,250,000 on the second anniversary of the closing. Cresco also agreed to pay Fiorello $500,000 as a good faith payment upon the execution and delivery of the Agreement. 22. 21.The Agreement also provided for an additional contingent payment that Cresco would make to Fiorello if the State of New York legalized adult sales of marijuana on or before the fourth anniversary of the closing of the Definitive Agreement. 23. 22.The Agreement does not include any expiration or termination provision. Instead, the Agreement states only that the parties would use their “best efforts” to conclude the Definitive Agreement within thirty business days—by days from the date of execution—by the close of business on March 2930, 2018—and a closing date “on or about” April 15, 2018. Id. at 2, 4. 24. 23.The aspirational closing date in the Agreement was subject to conditions precedent: the exact closing date would be “subject to the completion of the Parties’ satisfactory due diligence and the approval of the respective Parties’ boards of directors and shareholders/members and the [New York State Department of Health].” Id. at 3. Cresco committed to provide Fiorello with a due diligence list and to assist with Fiorello’s due diligence by providing “whatever relevant materials and documentation Fiorello may reasonably request.” Id. at 4. Both parties agreed to “endeavor to complete their respective due diligence reviews as promptly as practicable.” Id. at 4. 25. The Agreement also included confidentiality provisions, which required the parties to keep confidential “[t]he execution of this LOI and the contemplated completion of this transaction.” Id. at 5 (the “Confidentiality Provision”). 26. 24.The Agreement also provided that the defendants Yoss and Sirota would receive compensation and continued health benefits for a period of twenty-four months under 7 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 consulting agreements with Fiorello. Id. at Cresco. Id. at 2. Sirota and Yoss had heavily negotiated the amount of compensation they would receive under the consulting agreements, and ultimately agreed to a lower amount than they had sought. On or around February 15, 2018, Sirota stated that he and Yoss were “uncomfortable” with the amount of consulting compensation they would receive from Cresco, but they nonetheless executed a term sheet under which Cresco would make monthly payments of $6,000 to Sirota and Yoss for a period of twenty-four months (or a total of $144,000 to each of them). See Term Sheet for Consulting Agreements, attached as Exhibit 2. Fiorello Enters Into Negotiations with Third Parties 25.On information and belief, soon after the February 14, 2018 execution of the Agreement, Fiorello began discussing the potential sale of a majority equity stake in Fiorello to one or more Defendant John Does 1–10. 27. Sirota and Yoss did not inform Fiorello’s shareholders that they had signed the Agreement contemplating the sale of Fiorello’s shares, even though their fiduciary duties required them to do so. Nor did Sirota and Yoss inform Fiorello’s shareholders that Fiorello was bound by the No-Shop Provision. 28. Instead, soon after the February 15, 2018 execution of the Agreement, Sirota and Yoss, purportedly acting for Fiorello but prioritizing their own interests, affirmatively pursued and discussed a transaction with multiple third-parties other than Cresco in an effort to increase the amount of compensation they would personally receive from a transaction. Fiorello ultimately entered into and consummated an alternative sale transaction with one of those third- parties for a purchase price that was significantly higher than that agreed to in the Agreement with Cresco, reaping a substantial profit for Fiorello, Sirota, and Yoss and substantial additional personal benefits for Sirota and Yoss. 8 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 29. On the same day that Fiorello executed the Agreement with Cresco, Sirota and Yoss began discussing the sale of a majority equity stake in Fiorello with companies other than Cresco. On February 15, 2018, within hours after it executed the Agreement, Sirota and Yoss spoke to the CEO of Liberty Health Sciences, Inc. (“Liberty”). Liberty is a Florida-based medical cannabis company that was introduced to Fiorello in January 2018 as a company that “is looking at a number of potential acquisitions in the US market” and that specifically had interest in entering the New York market. 30. On February 22, 2018, Sirota and Yoss participated in a breakfast meeting with representatives from Liberty, one of numerous conversations between Fiorello and Liberty during the period when Fiorello was obligated not to discuss a transaction with anyone other than Cresco. 31. On March 2, 2018, Liberty’s CEO texted Sirota: “We are sending you an unsolicited int hr [sic] next 24 hours. Should I send to the board or to you.” Within minutes, Sirota responded by calling Liberty’s CEO. 32. One day later, on March 3, 2018, Liberty submitted a letter of intent to Fiorello with an offer that included a higher total purchase price ($27.5 million) and a higher upfront payment ($22.5 million by the closing date) than the terms of the Agreement with Cresco. The cover email made clear that Liberty “is interested in the 100% acquisition of Fiorello Pharmaceuticals.” 33. Although Sirota responded in writing that “the [Fiorello] Board is unable to entertain the current offer until at least March 30th,” Sirota and Yoss continued to discuss a transaction with Liberty. Sirota and Yoss had numerous additional conversations with Liberty’s CEO over the next ten days. During this period, Liberty’s CEO also sent text messages to Sirota, including messages indicating that Liberty was “thinking about” proposals made by Sirota. 9 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 34. Liberty submitted a revised letter of intent to Sirota and Yoss on March 16, 2018. Internal emails show that Liberty understood that it should send the revised offer to “both Eric [Sirota] and Susan [Yoss] to make it appear as if we have not had discussions.” On information and belief, Liberty wanted to create a misleading paper trail of its discussions with Fiorello based on guidance Liberty received from Sirota and Yoss. 35. On March 17, 2018, Yoss wrote to a Fiorello shareholder that Fiorello was “Moving ahead on Cresco. The other party is still interested, but it is getting a bit too complicated.” Fiorello Discusses a Transaction with GTI 36. During the period when Fiorello was obligated to discuss a transaction solely with Cresco, Sirota and Yoss also began to discuss the sale of a majority equity stake in Fiorello with GTI, the company that ultimately acquired Fiorello. GTI is, like Cresco, a vertically-integrated medical cannabis company with operations in multiple states. 37. In mid-March 2018, while the No-Shop Provision was in effect, GTI’s then- Chairman Ben Kovler sent several email inquiries to Sirota and Yoss. Sirota and Yoss knew that GTI was interested in acquiring a New York-licensed medical cannabis company. Accordingly, in light of the No-Shop Provision, Sirota and Yoss ought to have either ignored those inquiries or informed GTI that Fiorello could not discuss a transaction. 38. Instead, on March 20, 2018, Sirota and Yoss affirmatively called Kovler, and they had two separate phone calls that day. Sirota and/or Yoss made statements that caused GTI to make a new and higher offer ($25 million) to Sirota and Yoss within hours. This discussion breached the terms of the No-Shop Provision. 39. On information and belief, GTI had not begun to draft a formal offer to acquire Fiorello prior to the outreach by Sirota and Yoss. The amount of GTI’s offer was exactly $2.5 10 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 million more than the amount in the Agreement with Cresco, even though GTI expected it could acquire Fiorello for a lower amount just before Fiorello executed the Agreement with Cresco – suggesting that Sirota and Yoss further breached the Confidentiality Provision of the LOI by informing GTI of the price set forth in that agreement. 40. Like Liberty, GTI was also aware of the importance of avoiding the appearance of discussions with Fiorello. Although Kovler sent the offer to Sirota and Yoss within hours after they spoke, Kovler’s cover email falsely asserted that “we haven’t spoken in a while.” In his deposition, Kovler acknowledged that his use of that phrase was “strange” and “doesn’t totally tie out” given that he had spoken with Sirota and Yoss that day. Moreover, notwithstanding the more recent March 2018 emails that Kovler had sent to Sirota and Yoss, Kovler sent the offer in response to a December 2017 email chain, creating the false impression that he had not had more recent communications. On information and belief, Kovler, like Liberty’s CEO, took these steps to create a misleading paper trail based on his discussions with Sirota and Yoss. 41. On March 22, 2018, Sirota disclosed to Kovler a material term of the Agreement with Cresco—the date that was thirty business days after its execution and therefore the fast- approaching last day of exclusivity. This disclosure was a further breach of the No-Shop Provision and the related Confidentiality Provision. 42. The offers that Sirota and Yoss solicited from Liberty and GTI during the period when Fiorello was obligated to discuss a transaction only with Cresco included “more desirable financial terms with regard to the timing and amount of upfront payments” than the Agreement with Cresco. Affidavit of Eric Sirota (NYSCEF Doc. No. 22) ¶ 52. As a result, on account of Fiorello’s breach of the No-Shop Provision, Sirota and Yoss “understood that those other offers made approval of any transaction with Cresco on the financial terms set forth in the LOI less likely.” Id. ¶ 53. 11 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 Fiorello Covers Up Its Breach of the No-Shop Provision 43. 26.To Sirota and Yoss never informed Cresco that Fiorello had received competing offers. Instead, to cover up this ongoing breach of the No-Shop Provision and attempt to escape its Fiorello’s obligations under the Agreement, Fiorello , through co-CEOs Sirota and Yoss, delayed performance of its obligations to Cresco, falsely claimed prematurely proclaimed that the Agreement and No-Shop Provision had expired, and falsely accused Cresco of breach. 44. 27.For example, contrary to its agreement to “endeavor to complete their respective due diligence reviews as promptly as practicable,” Agreement at 3, Fiorello delayed providing the required due diligence materials to Cresco until March 10, 2018, nearly one month after the Agreement was executed. By that point, Sirota and Yoss had spoken with Liberty on numerous occasions. 45. 28.Similarly, in breach of its agreement to “in good faith prepare and execute definitive agreements,” id. at 3, Fiorello delayed providing edits to a draft Definitive Agreement. It wasn’t until March 26, 2018—approximately three weeks after receiving Cresco’s draft—that Fiorello provided its first redline markup of the draft Definitive Agreement. By that point, Sirota and Yoss had caused Fiorello to obtain multiple higher offers from Liberty and GTI. Furthermore, Fiorello’s March 26 redline of the draft Definitive Agreement introduced several material changes to terms that had already been agreed upon and incorporated into the Agreement. 46. 29.Beginning in April 2018—more than 45 days after the Agreement had been executed—Fiorello took a new tack: it argued for the first time that the Agreement (and/or the No-Shop Provision) had now expired and stated that any continued work toward a Definitive Agreement would require an extension executed by the partiesOn March 29, 2018, Fiorello 12 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 prematurely proclaimed to Cresco that the Agreement had expired. As noted above, however, thirty business days after the Agreement has no expiration provision’s execution occurred no earlier than March 30, 2018, and in any event, Fiorello’s delaying tactics precluded it from relying on any such provision. Fiorello’s premature pronouncement was followed by a flurry of conversations with Liberty and GTI while the No-Shop Provision remained in effect. 47. On March 29, 2018, a few minutes after Fiorello’s counsel proclaimed that the Agreement had expired, Sirota contacted Liberty’s CEO. 48. On the morning of March 30, 2018—before the end of the thirtieth business day after the Agreement’s execution—Sirota had multiple phone conversations with Kovler and Liberty’s CEO. 49. 30.On April 6, 2018, Fiorello claimed for the first time that its board of directors had determined that a new agreement would need to be executed. 50. 31.On April 8, 2018, Fiorello offered yet another excuse for escaping its obligations under the Agreement, making a false accusation that Cresco had breached its confidentiality obligations under the Agreement. 51. 32.Then, on April 12, 2018, Fiorello’s counsel sent an email stating that Fiorello was “ending discussion” with Cresco and offering to return Cresco’s good faith payment. Fiorello still has not returned the good faith payment. 52. 33.Finally, Sirota and Yoss contacted Cresco and confirmed for the first time that they had communicated with third parties regarding other offers to purchase Fiorello’s equity and obtain its license (in violation of the No-Shop Provision) and that the Fiorello board was not sure if it would continue to pursue a transaction with Cresco. Fiorello Enters into an Agreement with a Third Party 13 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 53. 34.In open court on May 22, 2018, counsel for Fiorello stated that Fiorello was “negotiating with other prospective suitors who have actually offered 68 percent more than the price in the - – out of line with Cresco.” May 22, 2018 Mot. to To Seal Tr., attached hereto as Exhibit 23, at 7:17-19. 54. 35.On June 14, 2018, Fiorello’s counsel sent Cresco an e-mail soliciting “Best and Final” bids for “a potential acquisition of 100% of the outstanding capital stock in of the Company,” to be submitted no later than June 22, 2018. The purchase of capital stock proposed in the solicitation is exactly what the Agreement gave Cresco the exclusive right to negotiate. And this sort of auctioning off of the Company during a rising market—clearly designed to pit potential suitors against each other to drive up the sale price as high as possible—is exactly what Cresco negotiated to avoid through the No-Shop Provision. 55. 36.Ultimately, Fiorello entered into a merger agreement to sell its shares to a Defendant John Doewith GTI. On June 29, 2018, Fiorello’s shareholders consented to and joined in the merger agreement, approving the sale of their shares to a Defendant John DoeGTI. See “Consent of the Shareholders,” attached as Exhibit 34; “Joinder Agreement,” attached as Exhibit 4. 5. Fiorello and GTI amended the merger agreement in December 2018. 56. The merger transaction between GTI and Fiorello closed on or around August 23, 2019, soon after approval from the New York State Department of Health. See Aug. 26, 2019 GTI Canadian Securities Exchange Filing, attached as Exhibit 6. On or around that time, Fiorello’s shareholders received approximately $43 million in cash directly from GTI, plus equity in GTI worth at least $14 million. This is approximately 60% more than the base purchase price in the Agreement with Cresco. Yoss received approximately $12 million in cash and $4 million in equity and Sirota received approximately $9 million in cash and $3 million in 14 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 equity directly from GTI from the completed sale of Fiorello to GTI. In combination, Sirota and Yoss received about half of the improper gain that Fiorello achieved through its breach. 57. In addition to their share of the purchase price, Sirota and Yoss negotiated for and received substantial personal benefits from the merger transaction with GTI that they would not have received under the Agreement with Cresco. For example, Sirota and Yoss received $327,150 and $352,950, respectively, for “consulting services,” far in excess of the consulting payments Cresco agreed to pay them; Sirota and Yoss obtained health and welfare benefits and annual salaries of $150,000, even though on information and belief GTI did not want to employ them; Sirota and Yoss and other Fiorello shareholders received a broad indemnification from GTI for all liabilities and expenses of this litigation, including attorneys’ fees; Sirota and Yoss ensured that they continued to hold seats on Fiorello’s board of directors; and Sirota and Yoss secured the appointment of a company they formed to serve as shareholder representative. In addition, after GTI issued a line of credit to Fiorello, and while GTI was controlling the business, Fiorello added Andrea Yoss—on information and belief, the daughter of Susan Yoss—to the payroll with an $80,000 salary. 37. The John Does would or should have learned of the Agreement’s existence, including its requirement that Fiorello would negotiate exclusively with Cresco. By May 22, 2018, these facts were made public. Nonetheless, Defendant John Does 1–10 continued to discuss and negotiate with Fiorello to acquire its shares for themselves and to Cresco’s detriment. Defendant John Does 1–10’s willingness to do so induced Fiorello to breach the binding No- Shop Provision. 58. 38.Because Fiorello breached the No-Shop Provision and because Defendant John Does 1–10 induced Defendant Fiorello to do soDefendants Sirota and Yoss personally induced 15 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 Fiorello’s breach of contract for their own personal profit, Cresco was not able to purchase Fiorello’s shares pursuant to the Agreement. Fiorello’s Breach Requires Cresco to Purchase A Different Company 59. 39.While Fiorello breached the No-Shop Provision, Cresco complied with its obligations by refraining from “discuss[ing] or enter[ing] into any transaction with any third- party involving . . . the purchase of any equity interest in or assets of another medical marijuana company in the State of New York.” Agreement at 4. Cresco did so in spite of the fact that acquiring a New York license quickly was of chief importance to the company and even as the price of acquiring other New York-licensed medical cannabis companies was sharply rising. Because Cresco was bound by the No-Shop Provision in the Agreement, Cresco gave up the opportunity to more quickly or more cheaply acquire another New York medical marijuana company. 60. 40.In July 2018, after Fiorello had executed an agreement with a third party, Cresco began to negotiate to acquire another New York-licensed medical cannabis company. 61. 41.In October 2018, Cresco executed a merger agreement to acquire that company. The price , and the transaction closed in October 2019 after approval from the New York State Department of Health. The amount of consideration that Cresco agreed to pay paid to acquire a company comparable to Fiorello was substantially significantly more than it would have paid to acquire Fiorello under the terms of the Agreement, and over $50 million more than the amount of consideration GTI actually provided to purchase Fiorello. The increased cost was a direct result of the significant increase in the value of medical cannabis companies with a New York license during the period when Cresco complied with its obligations under the No-Shop Provision, and the fact that Fiorello’s breaches made Cresco’s target the only remaining New York-licensed cannabis company available for acquisition. 16 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 FIRST CLAIM FOR RELIEF Breach of No-Shop Provision (Against Defendant Fiorello) 62. 42.Plaintiffs incorporate the foregoing allegations as if fully set forth herein. 63. 43.On February 1415, 2018, Plaintiffs Cresco and Defendant Fiorello fully executed and entered into the Agreement, which included the No-Shop Provision. See Exhibit 1. 64. 44.As alleged more fully above, the No-Shop Provision required that Fiorello not discuss or enter into any transaction in lieu of the agreed-upon transaction with Cresco. In consideration for this promise, Cresco similarly agreed, among other things, not to discuss or enter into any such transaction. 65. 45.Plaintiffs Cresco fulfilled their obligations under the No-Shop Provision by refraining from engaging in discussions or transactions with other New York medical cannabis companies. 66. 46.Defendant Fiorello breached its obligations under the No-Shop Provision by engaging in such discussions, and ultimately by entering into a transaction for the sale of Fiorello to a third party. 67. 47.As a result of Fiorello’s breach, Plaintiffs have been damaged by, among other things, entering into a more expensive replacement transaction and lost profits from their delay in acquiring a New York license, in an amount to be proved at trial. SECOND CLAIM FOR RELIEF Breach of Contract for the Sale of Fiorello’s Stock (Against Defendant Fiorello) 48. Plaintiffs incorporate the foregoing allegations as if fully set forth herein. 49. On February 14, 2018, Plaintiffs Cresco and Defendant Fiorello fully executed and entered into the Agreement. See Exhibit l. 17 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 50. The Agreement expressly evidences the parties’ mutual intent to be bound by its terms. It explicitly states that it is “binding on the Parties” and refers to its own “binding nature” and “binding provisions.” 51. The Agreement provides that Cresco would acquire 100% of the shares of Fiorello in exchange for a minimum of $22,500,000 in consideration. The Agreement further required that Cresco would pay Fiorello $500,000 as a good faith payment. 52.The Agreement was subject to conditions precedent to performance: the completion of due diligence, approval by the parties’ boards of directors and shareholders/members, and approval of the New York State Department of Health. 53. As described herein, Defendant Fiorello frustrated the conditions precedent by delaying completion of due diligence, by falsely accusing Cresco of breach, by falsely claiming the Agreement had terminated, and by discussing a transaction for the sale of its equity to a third party in violation of the No-Shop Provision without ever seeking the approval of shareholders or the Department of Health for the contract with Cresco. 54. Fiorello then proceeded to enter into an agreement to sell 100% of its stock to a third party in breach of its contract with Cresco. 55. In addition, Fiorello failed to refund the good faith payment to Cresco. 56. Plaintiffs Cresco fulfilled their obligations under the contract by making the required good faith payment and by taking the necessary steps toward meeting the conditions precedent of due diligence and board and shareholder approval. Cresco timely provided to Fiorello the due diligence list, the documents Fiorello requested in order to perform its own due diligence, and drafts of the Definitive Agreement. 57. Plaintiffs have been damaged as a result of Defendant Fiorello’s breach of the Agreement in an amount to be proved at trial. 18 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 THIRD CLAIM FOR RELIEF Tortious Interference with Contract (Against Defendant John Does 1–10Defendants Sirota and Yoss) 68. 58.Plaintiffs incorporate the foregoing allegations as if fully set forth herein. 59. Plaintiffs Cresco and Defendant Fiorello fully executed and entered into a contract, in the form of a binding Agreement, on February 12, 2018. See Exhibit 1. 60. Defendant John Does 1–10, through their own due diligence and discussions with Fiorello, knew or should have known of the Agreement’s existence, including its terms providing for exclusive negotiations between Fiorello and Cresco. In any event, by May 22, 2018, the existence of the Agreement was made public. 61. Notwithstanding these terms calling for exclusivity, Defendant John Does 1–10 interjected themselves into the negotiations for the license. In doing so, they intentionally procured Fiorello’s breach of the Agreement’s exclusivity terms and ultimately the sale terms. 62. Because their own economic interest is insufficient, Defendant John Does 1–10 had no justification for their interference with the binding Agreement. 63. Until Defendant John Does entered into an agreement to acquire Fiorello’s stock, Plaintiffs Cresco were ready, willing, and able to perform all future obligations under the contract, including finalizing and executing the Definitive Agreement. 64. As a result of Defendant John Does 1–10’s conduct, Cresco has suffered damages in an amount to be proven at trial. FOURTH CLAIM FOR RELIEF Unjust Enrichment (Against Defendants Sirota and Yoss) 65. Plaintiffs incorporate the foregoing allegations as if fully set forth herein. 19 FILED: NEW YORK COUNTY CLERK 02/03/2023 06:40 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 775 RECEIVED NYSCEF: 02/03/2023 66. As substantial shareholders in Fiorello, Sirota and Yoss stand to benefit from Fiorello’s breaches of contract by receiving a large proportion of the additional compensation that Fiorello would receive from selling itself to a third party rather than to Cresco. 67. These benefits will come at Cresco’s expense, because just as Sirota and Yoss capitalized on rising market pric