Cresco Labs N.Y. v. Fiorello Pharm.
| Decision Date | 02 December 2022 |
| Docket Number | 2022-51178 |
| Citation | 2022 NY Slip Op 51178 (U) |
| Parties | Cresco Labs New York, LLC, CRESCO LABS LLC, AN ILLINOIS LIMITED LIABILITY COMPANY, Plaintiff, v. Fiorello Pharmaceuticals, Inc., ERIC SIROTA, SUSAN YOSS, JOHN DOES 1 - 10, Defendant. |
| Court | New York Supreme Court |
Unpublished Opinion
Plaintiffs by: Jenner & Block LLP.
Defendants by: Izower Lefton, LLP.
The following e-filed documents, listed by NYSCEF document number (Motion 011) 221, 222, 283, 284, 285, 286, 287, 288, 289 290, 291, 292, 293, 294, 295, 296, 297, 298, 299, 300, 301 302, 303, 304, 305, 306, 307, 308, 309, 310, 311, 312, 313 314, 315, 316, 317, 318, 319, 320, 321, 322, 323, 324, 325, 326, 327, 328, 329, 330, 331, 332, 333, 334, 335, 336, 337, 338, 339, 340, 341, 342, 343, 344, 345, 346, 347, 348, 349, 350, 351, 352, 353, 354, 355, 356, 357, 358, 359, 360, 361, 362, 363, 364, 365, 366, 367, 368, 369, 370, 371, 372, 373, 374, 375, 376, 377, 378, 379, 380, 381, 382, 383, 384, 385, 386, 387, 388, 389, 390, 391, 392, 393, 394, 395, 396, 397, 398, 399, 400, 401, 402, 403, 404, 405, 406, 407, 408, 409, 410, 411, 412, 413, 414, 415, 416, 417, 419, 420, 421, 422, 423, 424, 434, 435, 436, 437, 438, 439, 440, 441, 442, 443, 444, 445, 446, 447, 448, 449, 450, 451, 452, 453, 454, 455, 456, 457, 458, 459, 460, 461, 462, 463, 464, 465, 466, 467, 468, 469, 470, 471, 472, 473, 474, 475, 476, 477, 478, 479, 480, 482, 483, 484, 485, 486, 487, 488, 489, 490, 491, 492, 493, 494, 495, 496, 497, 498, 499, 500, 501, 502, 503, 504, 505, 506, 507, 508, 509, 510, 511, 512, 513, 514, 515, 516, 517, 518, 519, 520, 521, 522, 523, 524, 525, 526, 527, 528, 529, 530, 689, 690, 691, 692, 693, 694, 695, 696, 697, 698, 699, 700, 701, 702, 703, 704, 705, 706, 707 were read on this motion to/for SUMMARY JUDGMENT(AFTER JOINDER.
The following e-filed documents, listed by NYSCEF document number (Motion 012) 223, 224, 558, 559, 560, 561, 562, 563, 564, 565, 566, 567, 568, 569, 570, 571, 572, 573, 574, 575, 576, 577, 578, 579, 580, 581, 582, 583, 584, 585, 586, 587, 588, 589, 590, 591, 592, 593, 594, 595, 596, 597, 598, 599, 600, 601, 602, 603, 604, 605, 606, 607, 609, 610, 611, 612, 613, 614, 615, 616, 617, 618, 619, 620, 621, 622, 623, 624, 625, 626, 627, 628, 629, 630, 631, 632, 633, 634, 635, 636, 637, 638, 639, 640, 641, 642, 643, 644, 645, 646, 647, 648, 649, 650, 651, 652, 653, 654, 655, 656, 657, 658, 659, 660, 661, 662, 663, 664, 665, 667, 668, 669, 670, 671, 672, 673, 674, 675 were read on this motion to/for DISMISS DEFENSE.
Fiorello Pharmaceuticals, Inc. (Fiorello) is not entitled to summary judgment and dismissal based on its arguments that Cresco Labs New York LLC and Cresco Labs LLC (hereinafter, collectively, Cresco) breached a letter of intent for Cresco's purchase of Fiorello (the LOI [hereinafter defined]) or that Cresco can not prove causation sufficient to establish damages for breach of contract.
The undisputed facts establish that (i) Fiorello breached the "no-shop" and confidentiality provisions set forth in the LOI almost immediately after the LOI was executed, (ii) Fiorello was able to consummate a transaction for the sale of Fiorello, (iii) Cresco was capable of acquiring a company in New York with a cannabis license and (iv) both Fiorello and Cresco were capable of working with counterparties to modify their transactions to obtain shareholder and New York Department of Health (DOH) approval.
In addition, Fiorello is not entitled to summary judgment that damages in this case should be limited to out-of-pocket costs.
In New York, as the Court of Appeals stated in Goodstein Constr. Corp. v City of New York, 80 N.Y.2d 366 (1992) , "under the accepted rule of Hadley v Baxendale (9 Exch 341, 156 Eng Rep 145 [1854]), it must be shown' that the particular damages were fairly within the contemplation of the parties to the contract at the time it was made' (Kenford Co. v County of Erie, 67 N.Y.2d 257, 261)". Therefore, under a garden variety letter of intent that is only an agreement to agree, expectation damages must be limited to out-of-pocket costs.
However, the record here firmly establishes the LOI was not a garden variety agreement to agree but was instead an agreement that contained specific provisions that reflected the express expectations of the parties that if they were unable to complete the transaction, each party would incur significant damages and would need to cover by doing a buy/sell transaction with another party. Put another way, the record firmly establishes that the LOI was predicated on the parties' express understanding that (i) there were only a few DOH cannabis licenses that had been issued in New York, (ii) only two licensed cannabis companies were potentially available for purchase (Fiorello and Valley [hereinafter defined]) and owning a New York cannabis license was critical to Cresco's going-public business strategy, (iii) Fiorello needed to consummate a sale transaction because of looming capital pressure tied to Fiorello's need to become operational to maintain its New York cannabis license, (iv) the LOI "no-shop" and confidentiality provisions were highly negotiated because of the highly competitive nature of the New York licensed cannabis market (few sellers and few buyers), and (v) absent this transaction, both sides would need to cover by doing another transaction if the Fiorello/Cresco transaction could not close.
Thus, although much of the LOI was only an agreement to agree, the undisputed facts show that as to certain express provisions here expectation damages included the difference between what it would have cost to do a deal between Fiorello and Cresco and the cover price of having to acquire an alternative company, Valley. These damages are based on the actual expectations of the parties at the time the binding LOI was executed, as reflected in the "no-shop" and confidentiality provisions, such that damages should not be limited to out-of-pocket costs tied only to the LOI (Hadley v Baxendale 9 Exch 341, 156 Eng Rep 145 [1854]; cf Goodstein, 80 N.Y.2d at 366).
Finally, the affirmative defenses predicated on Cresco's breach of the LOI must be dismissed because the record facts firmly establish that Cresco did not breach the LOI. Among other things, as discussed below, the Investment Deck did not identify Fiorello by name or otherwise have the effect of identifying Fiorello or that Cresco's LOI was with Fiorello or any of the terms of the LOI (even without the change apparently requested by Ms. Yoss), as Mr. Gulliver, Liberty Health Sciences' (Liberty) CFO, the only person who received the Investment Deck without the change, testified.
This case involves the sale of a weed company, Fiorello, and its immediate willful breach of "no-shop" and confidentiality provisions set forth in a binding Letter of Intent (the LOI; NYSCEF Doc. No. 287), dated February 14 2018, by and between Fiorello and Cresco. Indeed, on the record facts before the Court, and as discussed below, Eric Sirota and Susan Yoss, Fiorello's Co-CEOs, never intended to honor the "no-shop" or the confidentiality provisions in the LOI and actively sought to conceal Fiorello's willful breach of those LOI provisions.
Reference is made to an Amended Decision and Order of this Court (the Prior Decision; NYSCEF Doc. No. 142), dated October 15, 2019. The background facts are set forth in the Prior Decision [1]. Familiarity is presumed. Terms used but not defined shall have the meaning ascribed thereto in the Prior Decision.
Briefly, Cresco is a multistate vertically integrated operator in the regulated cannabis business holding licenses across ten states (NYSCEF Doc. No. 344, ¶ 2). New York is one of the most important markets for medical cannabis. At the time of the LOI, Cresco did not own a company that was licensed in New York. The DOH had issued only ten vertically integrated licenses for the cultivation and processing of medical cannabis as well as the establishment of medical cannabis dispensaries. Three of the ten licensees had recently been acquired and therefore were not likely available for purchase. Four licensees were already owned and operated by multistate operators and therefore were not likely available for purchase. One licensee had been owned by an operational company and Cresco understood it was also not available for sale. Thus, of the ten licenses, practically, only two were potentially available for acquisition - Fiorello and Valley Agriceuticals, LLC (Valley) (id., ¶¶ 3-7).
Cresco was smoldering to roll an acquisition because Cresco was planning to become a publicly traded company in Canada and critical to their go-public transaction was establishing itself as a multistate United States cannabis company (id., ¶ 6). Therefore, Cresco looked to Fiorello and Valley as potential targets. Fiorello understood this. According to Charles Bachtell, Cresco's CEO, "Fiorello also knew that if Cresco could not complete an acquisition to acquire Fiorello, Cresco would be left competing against other multistate operators for the last remaining target, or Cresco could be shut out of the New York market altogether" (id., ¶ 10).
Fiorello was a New York corporation that possessed one of the ten licenses that permitted operation of a medical cannabis business in New York. Mr. Sirota and Ms. Yoss were the Co-CEOs of Fiorella. As of June 25, 2018, Fiorello had 15 shareholders of common stock: David Pompei, Elisha Rothman Mr. Sirota, John Sullivan, Judith Tytel, Lauren Handel, Marla Lacy, Mingleridge Business Resources LLC, MK Insights LLC, Neil Leibowitz, Plant Consulting Group, LLC, Sonic Health Corporation, Ms. Yoss, Terrace Corporation of New York, and The Clinic New York LLC (NYSCEF Doc. No. 47). ...
To continue reading
Request your trial