Contract analysis

I. PRELIMINARY STATEMENT Respondent Pellegrino Capital Group LLC ("PCG") respectfully submits this Memorandum of Law in support of its Response to the Demand for Arbitration and its Counterclaim for Declaratory Relief, both filed contemporaneously herewith. This memorandum sets forth the factual background and legal authority that support PCG's position and demonstrates that Claimant Meridian Shores Hospitality LLC's

II. STATEMENT OF RELEVANT FACTS A. Formation and Structure of Palmetto Grand Ventures LLC Palmetto Grand Ventures LLC is a Florida limited liability company formed on June 15, 2017, under and pursuant to the Florida Revised Limited Liability Company Act, Chapter 605, Florida Statutes. PGV was organized for the specific purpose of acquiring, renovating, and operating The Palmetto Grand Resort & Spa (the "Hotel" or the

Section 12.4 of the Operating Agreement grants PCG, in its capacity as Manager of PGV, the express and unconditional right, exercisable at any time after the fifth anniversary of the Effective Date of the Operating Agreement (i.e., at any time after June 15, 2022), to purchase all (but not less than all) of MSH's membership interest in PGV at Fair Market Value. Section 12.4 provides, in pertinent part: "At any time a

III. ARGUMENT A. PCG Exercised the Call Option in Strict Compliance with the Operating Agreement

1. The Call Option Was Properly Triggered After the Fifth Anniversary. Section 12.4 of the Operating Agreement grants PCG the express and unconditional right to purchase MSH's entire membership interest in PGV "at any time after the fifth (5th) anniversary of the Effective Date." The Effective Date of the Operating Agreement is June 15, 2017. The fifth anniversary of the Effective Date was June 15, 2022. PCG delivere

2. PCG Selected a Qualified Independent Appraiser as Required. Section 12.4 requires PCG, upon exercising the call option, to retain "an independent MAI-certified appraiser" to determine the Fair Market Value of PGV's assets. PCG retained Whitfield Realty Advisors LLC, through its principal, Gerald K. Whitfield, MAI. As detailed in Section II.D above, Mr. Whitfield satisfies every requirement of Section 12.4: • MAI C

1. Income Approach: The 9.5% Capitalization Rate and 10.75% discount Rate Are Within Market Norms. The Whitfield appraisal's income approach employed two standard analytical frameworks: direct capitalization and discounted cash flow. In the direct capitalization analysis, Mr. Whitfield applied a capitalization rate of 9.5% to the Hotel's stabilized net operating income. In the DCF analysis, Mr. Whitfield projected th

2. Sales-Comparison Approach: Whitfield Properly Weighted Comparable Transactions. In addition to the income approach, the Whitfield appraisal incorporated a sales-comparison approach, which is one of the three fundamental approaches to real property valuation recognized by the Appraisal Institute and USPAP. Mr. Whitfield identified seven comparable luxury hotel transactions that occurred in the Florida Gulf Coast an

3. Beacon's Adjustments for "Below-Market" Franchise Agreement and Deferred Maintenance Are Improper. In addition to its low discount and cap rates and its omission of a sales-comparison approach, the Beacon appraisal includes two specific upward adjustments that further inflate its value conclusion. Both adjustments are improper and unsupported. "Below-Market" Franchise Agreement Adjustment. Beacon added value for w

1. Section 12.7 Requires a Showing of Subjective Bad Faith or Intent to Materially Understate FMV. OA Section 12.7 provides: "If the Manager exercises the Call Option under Section 12.4 in bad faith or with the intent to materially understate the Fair Market Value of the Non-Managing Member's Membership Interest, the Manager shall pay to the Non-Managing Member, in addition to the Fair Market Value determined in acco

2. A Good-Faith Difference in Valuation Methodology Does Not Constitute Bad Faith. The central flaw in MSH's bad-faith claim is its conflation of a valuation disagreement with evidence of dishonest purpose. PCG retained an independent, MAI-certified appraiser who applied recognized valuation methodologies and arrived at a professional opinion of value. MSH retained its own appraiser who applied different methodologie

Section 12.4(c) of the Operating Agreement provides a detailed mechanism for resolving appraisal divergences: "If the Non-Managing Member disputes the Fair Market Value determined by the Manager's appraiser, the Non-Managing Member may, within thirty (30) days after receipt of the Manager's appraisal, retain a second independent MAI-certified appraiser to conduct a separate appraisal. If the two appraisals diverge by

3. MSH Cannot Meet Its Burden of Proof on Bad Faith. Beyond the legal standards discussed above, MSH simply has no evidence to support a claim of bad faith. MSH has not identified — and cannot identify — any facts suggesting that PCG instructed, influenced, pressured, or manipulated Mr. Whitfield or the Whitfield appraisal in any way. Mr. Whitfield is an independent professional who was engaged to render his own prof

4. MSH's $16.975 Million Penalty Demand Is Improperly Calculated. Even if bad faith were established — which, as demonstrated above, it cannot be — MSH's claimed penalty of $16,975,000 has no basis under the plain language of Section 12.7 and is improperly calculated.

Section 12.7 provides for a penalty of "up to twenty-five percent (25%) of the determined Fair Market Value of the redeemed Membership Interest." The operative base for the penalty calculation is the "determined Fair Market Value of the redeemed Membership Interest" — that is, the value of MSH's 35% interest as determined through the appraisal process, not a figure that includes MSH's accrued preferred return or any

1. OA Section 8.3 Imposes a Maintenance Standard, Not a Valuation Adjustment. OA Section 8.3 provides, in relevant part: "The Manager shall maintain, or cause to be maintained, the Property in first-class condition consistent with the standards of comparable luxury resort properties and in compliance with all applicable brand standards of the Franchisor." MSH asserts that PCG breached this obligation by failing to fu

2. PCG Has Met Its Maintenance Obligations. Even considered on its own terms, MSH's Section 8.3 claim lacks factual support. PCG has fulfilled its maintenance obligations diligently and in good faith throughout its tenure as Manager of PGV. As discussed in Section II.B above, between 2017 and 2019, PGV invested $24,300,000 in a comprehensive renovation that transformed the Property from an aging resort in need of sub

1. Standard for Declaratory Relief in Arbitration. Declaratory relief is an appropriate and well-recognized remedy in JAMS arbitration proceedings where the parties' rights under a contract are in genuine dispute. JAMS Comprehensive Arbitration Rules & Procedures, Rule 24(c), authorizes the Arbitrator to grant "any remedy or relief that the Arbitrator deems just and equitable and within the scope of the agreement of

2. No Bad-Faith Penalty Should Be Applied. For the reasons detailed at length in Section III.C above, Section 12.7 is inapplicable to this transaction and no penalt