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FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018
NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
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CRESCO LABS, NEW YORK, LLC, a New York
limited liability company, and CRESCO LABS LLC, Index No.: 652343/2018
an Illinois limited liability company, Hon. Andrew Borrok
Plaintiffs, Mot. Seq. No.
-against- AFFIRMATION OF
RONALD D. LEFTON
FIORELLO PHARMACEUTICALS, INC., a New York IN SUPPORT OF MOTION
corporation, ERIC SIROTA, an individual, SUSAN FOR A PROTECTIVE
YOSS, an individual, and JOHN DOES 1-10, ORDER AND FOR A STAY
OF DISCOVERY
Defendants.
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RONALD D. LEFTON, an attorney admitted to practice law in the State of New York
hereby affirms the following is true under penalties of perjury, as follows:
1. I am a member of the firm of Izower Feldman LLP, attorneys for defendants Fiorello
Pharmaceuticals, Inc., (“Fiorello”) and its co-chief executive officers, Susan Yoss, and Eric Sirota
(together “Defendants”), and am fully familiar with the matters set forth herein. I make this
affirmation in support of Defendants’ motion for a protective order pursuant to CPLR 3103 and
3124(b) for a stay of discovery until the motion to dismiss the amended complaint is decided. Such
a stay is consistent with CPLR 3214(b) which automatically stays all discovery pending the
determination of a motion to dismiss under CPRL 3211 or for summary judgment under CPRL
3212 or 3213. That statutory presumption should be adhered to in this case.
2. Plaintiffs have made clear by their own conduct that there is no need for expedited
discovery in this action. They have delayed rather than having aggressively pursued their claims.
The claims are themselves insufficient.
3. This Court, at two separate hearings—including in connection with denying Plaintiff’s
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motion for a preliminary injunction—has already expressed doubt about the viability of Plaintiffs’
action. This is because, although Plaintiff’s entire action is based upon a letter of intent, the
essential parties whose agreement and consent would be necessary to consummate the transaction
proposed by that letter of intent never signed nor participated in it.
4. Moreover, prior to serving discovery, Plaintiffs, have agreed to a briefing schedule for
the motion to dismiss, filed with the Court on November 26, 2018, that anticipates a return date in
March 2019.
5. Finally, Plaintiffs proposed discovery is nothing more than a fishing expedition. The
discovery is also clearly timed to harass Defendants when they are working feverishly to comply
with certain requirements of the Department of Health in advance of the July 2019 renewal of
Fiorello’s license to sell medical marijuana at certain approved dispensaries in the State of New
York.
A. The History of This Action Shows That There Is no Basis To Expedite Discovery In
Advance Of Determination Of The Motion To Dismiss The Amended Complaint
6. This action arises from a letter of intent dated February 14, 2018 to acquire 100% of the
stock of Fiorello from all of its shareholders (the “LOI”). None of Fiorello’s shareholders were
party to the letter of intent. Rather it was only an agreement to agree between Cresco and CLNY
(collectively “Cresco” or “Plaintiffs”), and Fiorello. The letter of intent was executed on behalf
of Cresco by Charles Bachtell, and was executed on behalf of Fiorello by one of its two co-chief
executive officers, Eric Sirota. The other co-chief executive officer of Fiorello initialed the letter
of intent. The letter of intent gave the parties 30 business days to complete due diligence and to
draft and execute a definitive agreement, which would be subject to approval by the Boards of
Directors of each company, the members of Cresco and CLNY, the New York State Department
of Health (“DOH”) and all the 17 shareholders of Fiorello. Although the letter of intent
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contemplated a purchase of 100% of the stock of Fiorello, it made no provision if there was less
than a unanimous agreement by such shareholders to sell pursuant to the terms of a definitive
agreement that was yet to be negotiated. Thus, none of the contemplated sellers were part of the
letter of intent. A true and correct copy of the LOI is annexed hereto as Exhibit “A”.
7. The 30th business day, March 29, 2018, in which to negotiate and execute a Definitive
Agreement to then propose to Fiorello shareholders, came and went with Cresco not yet having
completed its due diligence and no definitive agreement and necessary related documents having
been prepared. The letter of intent provided that the Definitive Agreement (defined to include all
necessary and related agreements including but not limited to promissory notes) be completed and
executed “at the earliest possible date but not later than thirty (30) business days from the date of
the execution of the LOI (unless otherwise extended by the mutual terms of the Parties.” There
being no Definitive Agreement and a host of open issues the letter of intent (“LOI”) expired by its
terms on March 29, 2018.
8. Fiorello promptly notified Cresco that the LOI had expired. Negotiations in the first
week of April 2018 to negotiate a new letter of intent were not successful.
1. Plaintiffs Neglect To Take Any Action With Respect To Their Alleged
Violation Of The LOI Until Weeks After Its Expiration
9. On May 11, 2018, CLNY commenced the instant action for breach of contract against
Fiorello by filing a summons with notice. Plaintiffs had waited a full six (6) weeks after the
expiration of the LOI. A true and correct copy of the filed Summons with Notice, dated May 11,
2018, appears on the court docket in this matter as Docket Item No. (“Dkt No.”) 1.
10. On June 26, 2018, a full twelve (12) weeks after the expiration of the LOI and more
than six (6) weeks after it commenced the action, CLNY filed a complaint for the first time. In
addition to Fiorello itadded Sirota and Yoss and certain John Does as defendants. A true and
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correct copy of the Complaint, appearing as Dkt No. 8, is annexed hereto as Exhibit “B”.
2. The Court Denies Signing Plaintiff’s Order To Show Cause For A
Temporary Restraining Order And Preliminary Injunction, Finding
No Likelihood of Success
11. Simultaneously with its Complaint, on June 26, 2018, CLNY also filed an order to show
cause for a temporary restraining order and preliminary injunction to enjoin Fiorello from entering
into or performing an agreement with any other party to sell its license, assets, or stock to any other
entity.
12. It is clear that CLNY’s objective in moving for an injunction was to prevent Fiorello’s
shareholders – who were not party to any agreement with CLNY – from selling their shares to
anyone else. DOH regulations prohibit medical marijuana licensees from transferring their
licenses and at the time Fiorello had no material assets.
13. After a full hearing on the application by CLNY, the Court denied any provisional relief.
The Court noted that there was no meaningful agreement to enforce because the essential sellers,
i.e. Fiorello’s shareholders, were not party to the LOI. A true and correct copy of the transcript of
the hearing on CLNY’s order to show cause on July 10, 2018, appearing as Dkt No. 45 is annexed
hereto as Exhibit “C”.
14. As observed by the Court during this hearing:
THE COURT: Let’s look at what’s being sought here in the order to show
cause. They are seeking to enjoin defendants from negotiating sale of the
company from its business operations, including its license.
...
So the only question before me is whether or not we have a contract that
stops – that would prohibit the defendants from selling the corporation;
right; the corporation’s business operations, including its license.
(Id., Transcript (“Tr.”) at 4:5-8, 4:12-16.)
15. The Court observed that Plaintiffs failed to demonstrate a likelihood of success on the
merits where Plaintiffs failed to set forth any evidence that Fiorello is being sold to another party
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in violation of the LOI:
THE COURT: You have to come in here and show me you have a
likelihood of success on the merits in order to get an injunction. . . . I
believe, in discussions we have had before off the record, that this
corporation owns a license that cannot be transferred without the consent of
the State of New York. Number two, the defendants or the counsel
representing the defendants never contends that – I think both parties
contended that what was really intended was the sale of the stock. Is that
true?
MR. LEFTON [Defendants’ counsel]: Yes, Your Honor.
THE COURT: Is that true?
MR. BALABANIAN [Plaintiff’ counsel]: That is true, Your Honor.
THE COURT: All right. Do you have an agreement with the shareholders
in which they agree to engage in whatever the contract provides for them
towards the sale of their stock to your client? . . . Again, we are faced with
a problem, and that is you’re alleging, on no information but on belief, that
this was a solicited offer. At this point we have no evidence there was a
solicitation by Fiorello dangling this alleged offer.
(Id., Tr. at 7:16-9:13.)
16. Accordingly, the Court concluded, in part, that the LOI was “not even an agreement to
agree,” but merely an agreement to try and convince the shareholders to sell their stock:
THE COURT: How can the company agree to sell the stock when the
company doesn’t own its own stock?
MR. LEFTON: Correct, Your Honor.
MR. BALABANIAN: Your Honor, putting that aside for a moment –
THE COURT: Putting that aside? How can we put it aside? You got a
contract that makes no legal sense. . . . All I understand Fiorello as the buyer
can do, as your client can do, is make an offer to the shareholders. You can’t
bind the shareholders.
MR. BALABANIAN: Correct.
...
THE COURT: The definitive agreement is not going to be binding on the
shareholders unless they consent to it. They are the ones who own the stock.
. . . This is an agreement for somebody else to agree, not even an agreement
to agree. It is an agreement for the corporation to see if it can convince the
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shareholders to sell their stock.
(Id., Tr. at 11:19 – 13:13.)
17. The Court refused even to sign the order to show cause so that CLNY could go forward
with its injunction application. A true and correct copy of the Court’s Decision and Order, entered
August 2, 2018 as Dkt No. 36 denying the motion, is annexed hereto as Exhibit “D”.
18. The Court unmistakably found that the it did not consider Plaintiff to be able to
demonstrate a probability of success on the merits.
3. Facing Defendants’ Motion To Dismiss, Plaintiffs Rely Upon
Defendants’ Good Faith In Granting Multiple Adjournments, And File
An Amended Complaint A Full Two Months Later
19. On August 10, 2018, Defendants filed a motion to dismiss the complaint in its entirety.
The parties entered into a briefing schedule. At that time the individual Defendants still had not
been served with process.
20. A few days before CLNY’s opposition papers were due on September 11, 2018, counsel
requested more time and advised that another firm was going to substitute as CLNY’s counsel. In
light of that request and to be courteous, we agreed.
21. Finally, on September 21, 2018, CLNY’s present counsel filed a substitution and
appeared. They sought to further extend the time to oppose the motion to dismiss so that the parties
could perhaps settle their disputes.
22. Again we agreed to Plaintiff’s request in good faith. However, in the course of such
discussions—which were not fruitful—counsel for CLNY advised that they intended to amend the
complaint. Rather than compel motion practice for leave to amend well past the statutory time
limits, we yet again agreed to Plaintiff’s request. We then agreed on a schedule for the filing of
the amended complaint and for our new motion to dismiss the amended complaint. These
schedules were filed with the Court and identified at a status conference on November 12, 2018.
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A true and correct copy of this Stipulation, which was so ordered by the Court on November 15,
2018, appears as Dkt No. 67, is attached hereto as Exhibit “E”.
23. In accordance with the agreed upon schedule, Plaintiffs served their Amended
Complaint on November 20, 2018. A true and correct copy of the Amended Complaint, which
appears as Dkt. No. 60, without its exhibits, is attached hereto as Exhibit “F”.
24. Although the Amended Complaint tried to cure many of the blatant defects of the
original complaint, it remains insufficient because, among other things, (i) it ignores that none of
Fiorello’s shareholders were ever party to the LOI despite the sole purpose of the LOI to purchase
100% of the Fiorello stock held by all those shareholders; (ii) it ignores the expiration provision
contained in the LOI; and (iii) it seeks to impose personal liability on Yoss and Sirota arising from
the LOI for their conduct as corporate officers. These are the same defects that pervaded the
original complaint considered by the Court at the hearing on Plaintiffs’ failed application for a
preliminary injunction.
25. The Amended Complaint, however, did name Cresco which had been a necessary but
missing party plaintiff, without serving Defendants with a supplemental summons or order or
stipulation to properly join Cresco as a party; dropped several of the most frivolous claims for
relief; and has refashioned the essential claim as an alleged breach of an ambiguous provision
which Plaintiffs now characterize as a “no shop” clause.
26. Upon review of the amended complaint we confirmed to Plaintiffs that we would file a
motion to dismiss, which the parties memorialized in a stipulation, dated November 26, 2018. By
such stipulation, the parties agreed to a return date of March 21, 2019. A true and correct copy of
this stipulation appears as Dkt No. 68 and is annexed hereto as Exhibit “G”.
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4. Plaintiffs Convey Their Intention To Compel Responses To Their
th
Discovery Demands Served On November 20 , While Having Also
Stipulated To Defendants Filing A Motion to Dismiss on January 16
27. Also on November 20, 2018 Plaintiffs served discovery, document requests and
interrogatories, on Defendants. True and correct copies of these discovery requests, Plaintiff’s
First Set of Requests for the Production of Documents upon Fiorello, and First Set of
Interrogatories to Fiorello, are annexed hereto respectively as Exhibits “H” and “I”. We objected
to such discovery as being premature in view of there having been no joinder of issue and
Plaintiffs’ knowledge of Defendants’ intent to file a motion to dismiss any amended complaint,
per the stipulated filing and briefing schedule.
28. Plaintiffs responded that they would not now seek to compel responses to the
interrogatories but insisted on going forward with their document requests. However, Plaintiffs
later agreed to enter into a stipulation, agreeing to await to compel Defendants’ responses to the
Requests to allow Defendants to file this instant motion for a stay on or by January 11, 2018
accordingly and agreeing to a briefing schedule for same. Attempts to resolve the dispute failed
and this motion follows.
B. The Usual Rule of CPLR 3124 That a Motion to Dismiss Pursuant to CPLR 3211
Automatically Stays Discovery Should Be Applied in This Instance
29. In the ordinary course a complaint is filed followed by joinder of issue in the form of
an answer, perhaps with counterclaims, followed by a preliminary conference which sets forth a
discovery schedule and then the commencement of discovery. This is reflected in part in
Commercial Part Rule 202.70 (Rule 11). With regard to depositions, defendants are granted the
opportunity to gain priority by serving notices of deposition with their answer. In this way the
issues of a particular matter are framed before discovery commences.
30. In this case the issues have not yet been framed. One of the party plaintiffs has not been
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properly joined, there has been no preliminary conference, the Court has yet to issue a discovery
schedule or preliminary conference order, nor have the parties even conducted the prerequisite
“meet and confer” to establish a discovery schedule and related parameters. The sufficiency of
the Amended Complaint—which suffers from the same defects as those already identified by the
Court—has not yet been tested.
31. The automatic stay provision of CPLR 3214 implicitly recognizes that the costs and
burdens of discovery should not be imposed before it is determined that a particular pleading is
viable. Moreover, CPLR 3214 also demonstrates that a plaintiff who has filed a notice pleading
should not be allowed to take pre-answer discovery to conduct a fishing expedition to bolster an
insufficient claim.
32. Yet that is exactly what Cresco seeks to do. Rather than alleging a factual basis to
support its claims of breach of the LOI, Cresco alleges unsupported conclusions, which are not
entitled to any credence. For instance, all Cresco’s allegations pertaining to an alleged breach of
the supposed “no shop” provision are based on allegations after the LOI expired on March 29,
2018. Cresco still ignores the fundamental flaws fatal to its claims. The provision in the LOI that
Cresco now focuses on is merely a part of an unenforceable LOI. It has no independent existence
from the entire agreement. It expired when the LOI expired on March 29, 2018. If the LOI is not
actionable as an agreement to agree and because it is with the wrong party (i.e., not with the
shareholders who own the stock to sell), then its various parts also are not actionable.
33. Moreover the Commercial Part Rules, section 202.70 at Rule 11, makes clear that all
discovery shall be preceded by a preliminary conference where, as part of the preliminary
conference order, a discovery schedule will be entered. There has yet to be any preliminary
conference in this case, nor has any discovery schedule or preliminary conference order been
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entered.
34. Although that same rule at subsection (d) provides that the court, upon application of
counsel, may determine “whether discovery will be stayed, pursuant to CPLR 3214 (b)”, doing so
is in context of the other provisions of Rule 11 which anticipate having had the preliminary
conference and the entry of a discovery schedule as part of a preliminary conference order.
35. The discovery requests by Cresco are extremely broad based and go far beyond the
four corners of the Amended Complaint. The two-fold goal is to engage in a fishing expedition to
provide fodder for a further amendment, and to harass Defendants. For instance, who Fiorello has
communicated with in the months after the expiration of the LOI on March 29, 2018 is entirely
irrelevant. Nevertheless many of Cresco’s requests essentially go to all communications with
anyone.
36. The sufficiency of Cresco’s Amended Complaint is suspect. This is demonstrated by
the comments previously made by the Court and its order denying CLNY’s application for a
preliminary injunction. Indeed, the Court refused even to allow the application to go forward. The
unmistakable inference is that CLNY could not establish a probability of success on the merits
because the essential sellers, Fiorello’s shareholders, were not party to the LOI.
37. Further dictating in favor of the general rule of staying discovery pending determination
of the motion to dismiss under CPLR 3211 is Plaintiffs’ own casual attitude towards this matter
and its actions which demonstrate anything but a emphasis on urgency. Despite the expiration of
the LOI on March 29, 2018, Plaintiffs:
a. Waited 6 weeks before commencing any action on the LOI, and
b. Waited a total of 3 months before filing any complaint;
c. Waited 3 months before seeking injunctive relief;
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d. Waited another month, until their opposition papers to the original motion
to dismiss were due, before seeking additional time to retain new counsel;
e. Then waited an additional 10 days before actually filing their substitution
of counsel; and finally
f. Waited another 2 months before filing their Amended Complaint, and
after such filing agreed to a briefing schedule with a mid-March 2019
return date on the motion to dismiss that pleading.
C. Discovery At This Time Is Particularly Harassing To Fiorello
38. This is not the conduct of plaintiffs who are anxious to proceed. Time is not critical to
this ordinary breach of contract action for money damages. There is no basis to expedite discovery
nor to impose those costs and burdens on Defendants in advance of testing the sufficiency of the
Amended Complaint and if not dismissed, framing all the issues on which discovery will be
appropriate.
39. By contrast this is an especially critical time to Fiorello. Unlike Cresco which
according to its pleading is a large multi-state enterprise that went public on the Canadian
Exchange in December 2018, Fiorello is a tiny entity. Its two co-chief executive officers,
Defendants Sirota and Yoss, are working feverishly to commence operations and otherwise
comply with requirements and deadlines by the DOH in advance of Fiorello’s July 2019 license
renewal application. Cresco knows that Fiorello’s license is up for renewal and has previously
alleged that Fiorello is not in compliance with DOH regulations and requirements.
40. Sirota and Yoss are busy overseeing the construction and opening of three dispensary
locations in upstate New York and in Manhattan, are supervising the build out of their
manufacturing facility in upstate New York and are negotiating for an additional dispensary
location which involves overcoming zoning obstacles and other permit issues. They must also
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FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ------------------------------------------------------------------X CRESCO LABS, NEW YORK, LLC, a New York limited liability company, and CRESCO LABS LLC, Index No.: 652343/2018 an Illinois limited liability company, Hon. Andrew Borrok Plaintiffs, Mot. Seq. No. -against- AFFIRMATION OF RONALD D. LEFTON FIORELLO PHARMACEUTICALS, INC., a New York IN SUPPORT OF MOTION corporation, ERIC SIROTA, an individual, SUSAN FOR A PROTECTIVE YOSS, an individual, and JOHN DOES 1-10, ORDER AND FOR A STAY OF DISCOVERY Defendants. ------------------------------------------------------------------X RONALD D. LEFTON, an attorney admitted to practice law in the State of New York hereby affirms the following is true under penalties of perjury, as follows: 1. I am a member of the firm of Izower Feldman LLP, attorneys for defendants Fiorello Pharmaceuticals, Inc., (“Fiorello”) and its co-chief executive officers, Susan Yoss, and Eric Sirota (together “Defendants”), and am fully familiar with the matters set forth herein. I make this affirmation in support of Defendants’ motion for a protective order pursuant to CPLR 3103 and 3124(b) for a stay of discovery until the motion to dismiss the amended complaint is decided. Such a stay is consistent with CPLR 3214(b) which automatically stays all discovery pending the determination of a motion to dismiss under CPRL 3211 or for summary judgment under CPRL 3212 or 3213. That statutory presumption should be adhered to in this case. 2. Plaintiffs have made clear by their own conduct that there is no need for expedited discovery in this action. They have delayed rather than having aggressively pursued their claims. The claims are themselves insufficient. 3. This Court, at two separate hearings—including in connection with denying Plaintiff’s AFFIRMATION - 1 - 1 of 12 FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019 motion for a preliminary injunction—has already expressed doubt about the viability of Plaintiffs’ action. This is because, although Plaintiff’s entire action is based upon a letter of intent, the essential parties whose agreement and consent would be necessary to consummate the transaction proposed by that letter of intent never signed nor participated in it. 4. Moreover, prior to serving discovery, Plaintiffs, have agreed to a briefing schedule for the motion to dismiss, filed with the Court on November 26, 2018, that anticipates a return date in March 2019. 5. Finally, Plaintiffs proposed discovery is nothing more than a fishing expedition. The discovery is also clearly timed to harass Defendants when they are working feverishly to comply with certain requirements of the Department of Health in advance of the July 2019 renewal of Fiorello’s license to sell medical marijuana at certain approved dispensaries in the State of New York. A. The History of This Action Shows That There Is no Basis To Expedite Discovery In Advance Of Determination Of The Motion To Dismiss The Amended Complaint 6. This action arises from a letter of intent dated February 14, 2018 to acquire 100% of the stock of Fiorello from all of its shareholders (the “LOI”). None of Fiorello’s shareholders were party to the letter of intent. Rather it was only an agreement to agree between Cresco and CLNY (collectively “Cresco” or “Plaintiffs”), and Fiorello. The letter of intent was executed on behalf of Cresco by Charles Bachtell, and was executed on behalf of Fiorello by one of its two co-chief executive officers, Eric Sirota. The other co-chief executive officer of Fiorello initialed the letter of intent. The letter of intent gave the parties 30 business days to complete due diligence and to draft and execute a definitive agreement, which would be subject to approval by the Boards of Directors of each company, the members of Cresco and CLNY, the New York State Department of Health (“DOH”) and all the 17 shareholders of Fiorello. Although the letter of intent AFFIRMATION - 2 - 2 of 12 FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019 contemplated a purchase of 100% of the stock of Fiorello, it made no provision if there was less than a unanimous agreement by such shareholders to sell pursuant to the terms of a definitive agreement that was yet to be negotiated. Thus, none of the contemplated sellers were part of the letter of intent. A true and correct copy of the LOI is annexed hereto as Exhibit “A”. 7. The 30th business day, March 29, 2018, in which to negotiate and execute a Definitive Agreement to then propose to Fiorello shareholders, came and went with Cresco not yet having completed its due diligence and no definitive agreement and necessary related documents having been prepared. The letter of intent provided that the Definitive Agreement (defined to include all necessary and related agreements including but not limited to promissory notes) be completed and executed “at the earliest possible date but not later than thirty (30) business days from the date of the execution of the LOI (unless otherwise extended by the mutual terms of the Parties.” There being no Definitive Agreement and a host of open issues the letter of intent (“LOI”) expired by its terms on March 29, 2018. 8. Fiorello promptly notified Cresco that the LOI had expired. Negotiations in the first week of April 2018 to negotiate a new letter of intent were not successful. 1. Plaintiffs Neglect To Take Any Action With Respect To Their Alleged Violation Of The LOI Until Weeks After Its Expiration 9. On May 11, 2018, CLNY commenced the instant action for breach of contract against Fiorello by filing a summons with notice. Plaintiffs had waited a full six (6) weeks after the expiration of the LOI. A true and correct copy of the filed Summons with Notice, dated May 11, 2018, appears on the court docket in this matter as Docket Item No. (“Dkt No.”) 1. 10. On June 26, 2018, a full twelve (12) weeks after the expiration of the LOI and more than six (6) weeks after it commenced the action, CLNY filed a complaint for the first time. In addition to Fiorello itadded Sirota and Yoss and certain John Does as defendants. A true and AFFIRMATION - 3 - 3 of 12 FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019 correct copy of the Complaint, appearing as Dkt No. 8, is annexed hereto as Exhibit “B”. 2. The Court Denies Signing Plaintiff’s Order To Show Cause For A Temporary Restraining Order And Preliminary Injunction, Finding No Likelihood of Success 11. Simultaneously with its Complaint, on June 26, 2018, CLNY also filed an order to show cause for a temporary restraining order and preliminary injunction to enjoin Fiorello from entering into or performing an agreement with any other party to sell its license, assets, or stock to any other entity. 12. It is clear that CLNY’s objective in moving for an injunction was to prevent Fiorello’s shareholders – who were not party to any agreement with CLNY – from selling their shares to anyone else. DOH regulations prohibit medical marijuana licensees from transferring their licenses and at the time Fiorello had no material assets. 13. After a full hearing on the application by CLNY, the Court denied any provisional relief. The Court noted that there was no meaningful agreement to enforce because the essential sellers, i.e. Fiorello’s shareholders, were not party to the LOI. A true and correct copy of the transcript of the hearing on CLNY’s order to show cause on July 10, 2018, appearing as Dkt No. 45 is annexed hereto as Exhibit “C”. 14. As observed by the Court during this hearing: THE COURT: Let’s look at what’s being sought here in the order to show cause. They are seeking to enjoin defendants from negotiating sale of the company from its business operations, including its license. ... So the only question before me is whether or not we have a contract that stops – that would prohibit the defendants from selling the corporation; right; the corporation’s business operations, including its license. (Id., Transcript (“Tr.”) at 4:5-8, 4:12-16.) 15. The Court observed that Plaintiffs failed to demonstrate a likelihood of success on the merits where Plaintiffs failed to set forth any evidence that Fiorello is being sold to another party AFFIRMATION - 4 - 4 of 12 FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019 in violation of the LOI: THE COURT: You have to come in here and show me you have a likelihood of success on the merits in order to get an injunction. . . . I believe, in discussions we have had before off the record, that this corporation owns a license that cannot be transferred without the consent of the State of New York. Number two, the defendants or the counsel representing the defendants never contends that – I think both parties contended that what was really intended was the sale of the stock. Is that true? MR. LEFTON [Defendants’ counsel]: Yes, Your Honor. THE COURT: Is that true? MR. BALABANIAN [Plaintiff’ counsel]: That is true, Your Honor. THE COURT: All right. Do you have an agreement with the shareholders in which they agree to engage in whatever the contract provides for them towards the sale of their stock to your client? . . . Again, we are faced with a problem, and that is you’re alleging, on no information but on belief, that this was a solicited offer. At this point we have no evidence there was a solicitation by Fiorello dangling this alleged offer. (Id., Tr. at 7:16-9:13.) 16. Accordingly, the Court concluded, in part, that the LOI was “not even an agreement to agree,” but merely an agreement to try and convince the shareholders to sell their stock: THE COURT: How can the company agree to sell the stock when the company doesn’t own its own stock? MR. LEFTON: Correct, Your Honor. MR. BALABANIAN: Your Honor, putting that aside for a moment – THE COURT: Putting that aside? How can we put it aside? You got a contract that makes no legal sense. . . . All I understand Fiorello as the buyer can do, as your client can do, is make an offer to the shareholders. You can’t bind the shareholders. MR. BALABANIAN: Correct. ... THE COURT: The definitive agreement is not going to be binding on the shareholders unless they consent to it. They are the ones who own the stock. . . . This is an agreement for somebody else to agree, not even an agreement to agree. It is an agreement for the corporation to see if it can convince the AFFIRMATION - 5 - 5 of 12 FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019 shareholders to sell their stock. (Id., Tr. at 11:19 – 13:13.) 17. The Court refused even to sign the order to show cause so that CLNY could go forward with its injunction application. A true and correct copy of the Court’s Decision and Order, entered August 2, 2018 as Dkt No. 36 denying the motion, is annexed hereto as Exhibit “D”. 18. The Court unmistakably found that the it did not consider Plaintiff to be able to demonstrate a probability of success on the merits. 3. Facing Defendants’ Motion To Dismiss, Plaintiffs Rely Upon Defendants’ Good Faith In Granting Multiple Adjournments, And File An Amended Complaint A Full Two Months Later 19. On August 10, 2018, Defendants filed a motion to dismiss the complaint in its entirety. The parties entered into a briefing schedule. At that time the individual Defendants still had not been served with process. 20. A few days before CLNY’s opposition papers were due on September 11, 2018, counsel requested more time and advised that another firm was going to substitute as CLNY’s counsel. In light of that request and to be courteous, we agreed. 21. Finally, on September 21, 2018, CLNY’s present counsel filed a substitution and appeared. They sought to further extend the time to oppose the motion to dismiss so that the parties could perhaps settle their disputes. 22. Again we agreed to Plaintiff’s request in good faith. However, in the course of such discussions—which were not fruitful—counsel for CLNY advised that they intended to amend the complaint. Rather than compel motion practice for leave to amend well past the statutory time limits, we yet again agreed to Plaintiff’s request. We then agreed on a schedule for the filing of the amended complaint and for our new motion to dismiss the amended complaint. These schedules were filed with the Court and identified at a status conference on November 12, 2018. AFFIRMATION - 6 - 6 of 12 FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019 A true and correct copy of this Stipulation, which was so ordered by the Court on November 15, 2018, appears as Dkt No. 67, is attached hereto as Exhibit “E”. 23. In accordance with the agreed upon schedule, Plaintiffs served their Amended Complaint on November 20, 2018. A true and correct copy of the Amended Complaint, which appears as Dkt. No. 60, without its exhibits, is attached hereto as Exhibit “F”. 24. Although the Amended Complaint tried to cure many of the blatant defects of the original complaint, it remains insufficient because, among other things, (i) it ignores that none of Fiorello’s shareholders were ever party to the LOI despite the sole purpose of the LOI to purchase 100% of the Fiorello stock held by all those shareholders; (ii) it ignores the expiration provision contained in the LOI; and (iii) it seeks to impose personal liability on Yoss and Sirota arising from the LOI for their conduct as corporate officers. These are the same defects that pervaded the original complaint considered by the Court at the hearing on Plaintiffs’ failed application for a preliminary injunction. 25. The Amended Complaint, however, did name Cresco which had been a necessary but missing party plaintiff, without serving Defendants with a supplemental summons or order or stipulation to properly join Cresco as a party; dropped several of the most frivolous claims for relief; and has refashioned the essential claim as an alleged breach of an ambiguous provision which Plaintiffs now characterize as a “no shop” clause. 26. Upon review of the amended complaint we confirmed to Plaintiffs that we would file a motion to dismiss, which the parties memorialized in a stipulation, dated November 26, 2018. By such stipulation, the parties agreed to a return date of March 21, 2019. A true and correct copy of this stipulation appears as Dkt No. 68 and is annexed hereto as Exhibit “G”. AFFIRMATION - 7 - 7 of 12 FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019 4. Plaintiffs Convey Their Intention To Compel Responses To Their th Discovery Demands Served On November 20 , While Having Also Stipulated To Defendants Filing A Motion to Dismiss on January 16 27. Also on November 20, 2018 Plaintiffs served discovery, document requests and interrogatories, on Defendants. True and correct copies of these discovery requests, Plaintiff’s First Set of Requests for the Production of Documents upon Fiorello, and First Set of Interrogatories to Fiorello, are annexed hereto respectively as Exhibits “H” and “I”. We objected to such discovery as being premature in view of there having been no joinder of issue and Plaintiffs’ knowledge of Defendants’ intent to file a motion to dismiss any amended complaint, per the stipulated filing and briefing schedule. 28. Plaintiffs responded that they would not now seek to compel responses to the interrogatories but insisted on going forward with their document requests. However, Plaintiffs later agreed to enter into a stipulation, agreeing to await to compel Defendants’ responses to the Requests to allow Defendants to file this instant motion for a stay on or by January 11, 2018 accordingly and agreeing to a briefing schedule for same. Attempts to resolve the dispute failed and this motion follows. B. The Usual Rule of CPLR 3124 That a Motion to Dismiss Pursuant to CPLR 3211 Automatically Stays Discovery Should Be Applied in This Instance 29. In the ordinary course a complaint is filed followed by joinder of issue in the form of an answer, perhaps with counterclaims, followed by a preliminary conference which sets forth a discovery schedule and then the commencement of discovery. This is reflected in part in Commercial Part Rule 202.70 (Rule 11). With regard to depositions, defendants are granted the opportunity to gain priority by serving notices of deposition with their answer. In this way the issues of a particular matter are framed before discovery commences. 30. In this case the issues have not yet been framed. One of the party plaintiffs has not been AFFIRMATION - 8 - 8 of 12 FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019 properly joined, there has been no preliminary conference, the Court has yet to issue a discovery schedule or preliminary conference order, nor have the parties even conducted the prerequisite “meet and confer” to establish a discovery schedule and related parameters. The sufficiency of the Amended Complaint—which suffers from the same defects as those already identified by the Court—has not yet been tested. 31. The automatic stay provision of CPLR 3214 implicitly recognizes that the costs and burdens of discovery should not be imposed before it is determined that a particular pleading is viable. Moreover, CPLR 3214 also demonstrates that a plaintiff who has filed a notice pleading should not be allowed to take pre-answer discovery to conduct a fishing expedition to bolster an insufficient claim. 32. Yet that is exactly what Cresco seeks to do. Rather than alleging a factual basis to support its claims of breach of the LOI, Cresco alleges unsupported conclusions, which are not entitled to any credence. For instance, all Cresco’s allegations pertaining to an alleged breach of the supposed “no shop” provision are based on allegations after the LOI expired on March 29, 2018. Cresco still ignores the fundamental flaws fatal to its claims. The provision in the LOI that Cresco now focuses on is merely a part of an unenforceable LOI. It has no independent existence from the entire agreement. It expired when the LOI expired on March 29, 2018. If the LOI is not actionable as an agreement to agree and because it is with the wrong party (i.e., not with the shareholders who own the stock to sell), then its various parts also are not actionable. 33. Moreover the Commercial Part Rules, section 202.70 at Rule 11, makes clear that all discovery shall be preceded by a preliminary conference where, as part of the preliminary conference order, a discovery schedule will be entered. There has yet to be any preliminary conference in this case, nor has any discovery schedule or preliminary conference order been AFFIRMATION - 9 - 9 of 12 FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019 entered. 34. Although that same rule at subsection (d) provides that the court, upon application of counsel, may determine “whether discovery will be stayed, pursuant to CPLR 3214 (b)”, doing so is in context of the other provisions of Rule 11 which anticipate having had the preliminary conference and the entry of a discovery schedule as part of a preliminary conference order. 35. The discovery requests by Cresco are extremely broad based and go far beyond the four corners of the Amended Complaint. The two-fold goal is to engage in a fishing expedition to provide fodder for a further amendment, and to harass Defendants. For instance, who Fiorello has communicated with in the months after the expiration of the LOI on March 29, 2018 is entirely irrelevant. Nevertheless many of Cresco’s requests essentially go to all communications with anyone. 36. The sufficiency of Cresco’s Amended Complaint is suspect. This is demonstrated by the comments previously made by the Court and its order denying CLNY’s application for a preliminary injunction. Indeed, the Court refused even to allow the application to go forward. The unmistakable inference is that CLNY could not establish a probability of success on the merits because the essential sellers, Fiorello’s shareholders, were not party to the LOI. 37. Further dictating in favor of the general rule of staying discovery pending determination of the motion to dismiss under CPLR 3211 is Plaintiffs’ own casual attitude towards this matter and its actions which demonstrate anything but a emphasis on urgency. Despite the expiration of the LOI on March 29, 2018, Plaintiffs: a. Waited 6 weeks before commencing any action on the LOI, and b. Waited a total of 3 months before filing any complaint; c. Waited 3 months before seeking injunctive relief; AFFIRMATION - 10 - 10 of 12 FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019 d. Waited another month, until their opposition papers to the original motion to dismiss were due, before seeking additional time to retain new counsel; e. Then waited an additional 10 days before actually filing their substitution of counsel; and finally f. Waited another 2 months before filing their Amended Complaint, and after such filing agreed to a briefing schedule with a mid-March 2019 return date on the motion to dismiss that pleading. C. Discovery At This Time Is Particularly Harassing To Fiorello 38. This is not the conduct of plaintiffs who are anxious to proceed. Time is not critical to this ordinary breach of contract action for money damages. There is no basis to expedite discovery nor to impose those costs and burdens on Defendants in advance of testing the sufficiency of the Amended Complaint and if not dismissed, framing all the issues on which discovery will be appropriate. 39. By contrast this is an especially critical time to Fiorello. Unlike Cresco which according to its pleading is a large multi-state enterprise that went public on the Canadian Exchange in December 2018, Fiorello is a tiny entity. Its two co-chief executive officers, Defendants Sirota and Yoss, are working feverishly to commence operations and otherwise comply with requirements and deadlines by the DOH in advance of Fiorello’s July 2019 license renewal application. Cresco knows that Fiorello’s license is up for renewal and has previously alleged that Fiorello is not in compliance with DOH regulations and requirements. 40. Sirota and Yoss are busy overseeing the construction and opening of three dispensary locations in upstate New York and in Manhattan, are supervising the build out of their manufacturing facility in upstate New York and are negotiating for an additional dispensary location which involves overcoming zoning obstacles and other permit issues. They must also AFFIRMATION - 11 - 11 of 12 FILED: NEW YORK COUNTY CLERK 01/11/2019 06:33 PM INDEX NO. 652343/2018 NYSCEF DOC. NO. 73 RECEIVED NYSCEF: 01/11/2019 12 of 12