Contract analysis

I. PRELIMINARY STATEMENT Respondent Pellegrino Capital Group LLC ("PCG" or "Respondent") submits this Response and Counterclaim in answer to the Demand for Arbitration filed by Claimant Meridian Shores Hospitality LLC ("MSH" or "Claimant") on March 20, 2023. This filing is made in accordance with the JAMS Comprehensive Arbitration Rules and Procedures and the arbitration clause set forth in Section 15.2 of the Operat

II. THE PARTIES A. Respondent. Pellegrino Capital Group LLC is a Florida limited liability company with its principal office located at 1900 Bayshore Boulevard, Suite 1400, Tampa, Florida 33606. PCG is organized under the Florida Revised Limited Liability Company Act, Chapter 605, Florida Statutes, and has been in continuous good standing with the Florida Department of State, Division of Corporations, since its forma

III. JURISDICTION AND GOVERNING LAW This arbitration is conducted pursuant to Section 15.2 of the Operating Agreement, which provides in relevant part: Any dispute, controversy, or claim arising out of or relating to this Agreement, or the breach, termination, or validity thereof, shall be settled by binding arbitration administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures then in effect

IV. FACTUAL BACKGROUND A. Formation of the Joint Venture and Acquisition of the Hotel On June 15, 2017, PCG and MSH executed the Operating Agreement of Palmetto Grand Ventures LLC, thereby forming PGV as a Florida limited liability company for the purpose of acquiring, renovating, and operating The Palmetto Grand Resort & Spa. The Operating Agreement was the product of extensive arm's-length negotiations between the

V. RESPONSE TO CLAIMANT'S ALLEGATIONS A. Responses to Specific Paragraphs of the Demand PCG responds to the specific allegations set forth in MSH's Demand for Arbitration, paragraph by paragraph, as follows:

1. PCG admits that PGV was formed on June 15, 2017, as a Florida limited liability company, and that the Operating Agreement was executed by PCG and MSH on that date.

2. PCG admits that the ownership of PGV is held as follows: PCG 65%, MSH 35%.

3. PCG admits that PCG serves as the sole Manager of PGV under the Operating Agreement.

4. PCG admits that PGV acquired The Palmetto Grand Resort & Spa on August 1, 2017, for a purchase price of $87.5 million, funded in part by a $61.25 million loan from Gulf Atlantic National Bank.

5. PCG admits that the members made equity contributions at the time of acquisition: PCG contributed $18,562,500 and MSH contributed $10,000,000.

6. PCG admits that PGV invested $24.3 million in renovations to the Hotel between 2017 and 2019, funded by additional equity contributions from the members in proportion to their respective membership interests.

7. PCG admits that the Operating Agreement contains a call option in OA Section 12.4 that became exercisable after the fifth anniversary of the Effective Date.

8. PCG admits that on January 9, 2023, PCG delivered written notice to MSH exercising the call option under OA Section 12.4.

9. PCG admits that it retained Whitfield Realty Advisors LLC as an independent MAI-certified appraiser to determine Fair Market Value in connection with the call-option exercise.

10. PCG admits that the Whitfield appraisal concluded that the Fair Market Value of 100% of PGV's real property and operating assets was $118.0 million as of December 31, 2022.

11. PCG admits that on March 1, 2023, PCG tendered a buyout price of $41,300,000 to MSH.

12. PCG admits that MSH rejected the tender on March 10, 2023.

13. PCG denies MSH's allegation that PCG acted in bad faith or with the intent to materially understate Fair Market Value in connection with the exercise of the call option or the retention of Whitfield Realty Advisors LLC. PCG selected Whitfield through a transparent and commercially reasonable process, and at no time did PCG seek to influence, direct, or constrain Whitfield's independent appraisal conclusions.

14. PCG denies MSH's allegation that the Whitfield appraisal was "flawed," "unreliable," or that the $118.0 million valuation conclusion materially understated the Fair Market Value of PGV's assets. The Whitfield appraisal was prepared by a highly qualified MAI-certified appraiser, employed two recognized valuation approaches, and reached conclusions that are well within the range of reasonable market values for the

15. PCG denies MSH's allegation that PCG breached OA Section 8.3 or any other provision of the Operating Agreement relating to capital expenditure or maintenance obligations. PCG, as sole Manager, invested $24.3 million in comprehensive renovations between 2017 and 2019 and has maintained the Property in first-class condition at all times in accordance with its contractual obligations. The Hotel's consistent performa

16. PCG denies that it is liable for any penalty under OA Section 12.7. The bad-faith provision requires affirmative evidence that the Manager exercised the call option "in bad faith or with the intent to materially understate Fair Market Value." MSH has not alleged, and cannot demonstrate, any fraudulent, deceptive, or dishonest conduct by PCG. The existence of a valuation divergence between two party-retained appra

17. PCG denies that the $8.2 million deferred-maintenance adjustment claimed by MSH and included in the Beacon appraisal is valid or properly included in a Fair Market Value determination. This claim is speculative, was never raised by MSH prior to this dispute, and is based on a selective and misleading characterization of the Property's physical condition.

18. PCG denies that MSH is entitled to a total buyout price of $70,000,000 or any amount in excess of the $41,300,000 properly tendered by PCG on March 1, 2023, and reserves its right to contest any alternative amount determined through the third-appraiser mechanism to the extent it includes any component for a bad-faith penalty.

19. To the extent any allegation in MSH's Demand for Arbitration is not specifically addressed above, PCG denies such allegation and puts MSH to its proof. B. Response to Bad-Faith Claim (OA Section 12.7) MSH's claim for a bad-faith penalty under OA Section 12.7 is the centerpiece of its demand, accounting for $16,975,000 of the $70.0 million total it seeks. This claim is entirely without merit and should be rejected

VI. AFFIRMATIVE DEFENSES PCG asserts the following affirmative defenses to MSH's claims, without thereby assuming the burden of proof on any issue for which MSH bears the burden: First Affirmative Defense: Compliance with Contractual Procedure PCG exercised the call option in strict compliance with every procedural and substantive requirement of OA Section 12.4. PCG delivered timely written notice of its exercise of

VII. COUNTERCLAIM FOR DECLARATORY RELIEF PCG, as Counterclaim-Claimant, hereby asserts the following Counterclaim for Declaratory Relief against MSH, as Counterclaim-Respondent. A. Parties to the Counterclaim The Counterclaim-Claimant is Pellegrino Capital Group LLC, a Florida limited liability company, the 65% majority member and sole Manager of Palmetto Grand Ventures LLC. The Counterclaim-Respondent is Meridian Sh

1. On January 9, 2023, PCG delivered written notice to MSH exercising its call option under OA Section 12.4 to purchase MSH's 35% membership interest in PGV at Fair Market Value.

2. In connection with the call-option exercise, PCG retained Whitfield Realty Advisors LLC, an independent MAI-certified appraiser led by Gerald K. Whitfield, MAI, as required by OA Section 12.4.

3. Whitfield completed its appraisal on February 10, 2023, and concluded that the Fair Market Value of 100% of PGV's real property and operating assets was $118,000,000 as of December 31, 2022. Whitfield employed market-standard income and sales comparison approaches, weighted 40% and 60% respectively, and reached its conclusion in accordance with the Uniform Standards of Professional Appraisal Practice.

4. PCG properly calculated MSH's buyout price as follows: Joint Venture Net Equity of $69,400,000 ($118,000,000 gross asset value less $48,600,000 outstanding debt) multiplied by MSH's 35% membership interest, yielding $24,290,000, plus MSH's accrued preferred return of $17,010,000, for a total buyout price of $41,300,000.

5. On March 1, 2023, PCG tendered the buyout price of $41,300,000 to MSH, accompanied by the Whitfield appraisal report and a proposed closing timeline, in accordance with OA Section 12.5.

6. On March 10, 2023, MSH rejected the tender without proper basis, alleging bad faith and material undervaluation without having obtained any competing appraisal or other evidence in support of its contentions.

7. On March 20, 2023, MSH filed its Demand for Arbitration with JAMS, again without having obtained a competing appraisal.

8. MSH subsequently retained Beacon Valuation Group Inc., which completed its appraisal on April 14, 2023—after the filing of the Demand for Arbitration—and concluded that FMV was $151,500,000, based on an income-only approach using aggressive assumptions and an unsupported deferred-maintenance adjustment.

9. The 28.4% divergence between the two appraisals exceeds the 10% threshold under OA Section 12.4(c), which would ordinarily trigger the third-appraiser mechanism.

10. PCG acted in good faith in all respects in connection with the call-option exercise and at no time harbored any intent to understate Fair Market Value. D. Count I: Declaratory Relief — Fair Market Value

11. PCG reasserts and incorporates by reference paragraphs 1 through 10 above.

12. An actual, justiciable controversy exists between PCG and MSH as to the proper Fair Market Value of MSH's 35% membership interest in PGV under OA Section 12.4 and, consequently, the proper buyout price payable to MSH.

13. PCG seeks a declaration from the Arbitrator that the $41,300,000 tendered by PCG on March 1, 2023 constitutes the proper buyout price for MSH's 35% membership interest in PGV under OA Section 12.4, calculated in accordance with the Whitfield appraisal and the formula set forth in the Operating Agreement.

14. In the alternative, PCG seeks a declaration that the proper Fair Market Value of PGV's assets shall be determined through the third-appraiser mechanism set forth in OA Section 12.4(c), and that the buyout price shall be calculated accordingly on the basis of the Fair Market Value so determined, without any bad-faith penalty under OA Section 12.7 or any deferred-maintenance adjustment.

15. PCG is entitled to such declaratory relief in order to establish its rights and obligations under the Operating Agreement and to resolve the parties' dispute with finality. E. Count II: Declaratory Relief — No Bad Faith

16. PCG reasserts and incorporates by reference paragraphs 1 through 15 above.

17. An actual, justiciable controversy exists between PCG and MSH as to whether PCG exercised the call option in bad faith or with the intent to materially understate Fair Market Value within the meaning of OA Section 12.7.

18. PCG did not exercise the call option in bad faith. PCG retained a reputable, independent, MAI-certified appraiser; received a professionally prepared and methodologically sound appraisal; and tendered a buyout price calculated in strict accordance with the appraisal's conclusions and the Operating Agreement's formula. At no time did PCG seek to influence, manipulate, or constrain the appraiser's conclusions.

19. PCG did not harbor any intent to materially understate Fair Market Value. The Whitfield appraisal's conclusion of $118,000,000 is well within the range of reasonable market values for the Property and was derived through the application of recognized valuation methodologies using market-supported inputs.

20. A good-faith disagreement over valuation methodology and conclusions between two party-retained appraisers does not constitute bad faith within the meaning of OA Section 12.7. The Operating Agreement's third-appraiser mechanism in OA Section 12.4(c) was specifically negotiated to address such disagreements.

21. PCG seeks a declaration from the Arbitrator that PCG did not exercise the call option in bad faith or with the intent to materially understate Fair Market Value, and that MSH is not entitled to any penalty under OA Section 12.7. F. Count III: Declaratory Relief — No Breach of OA Section 8.3

22. PCG reasserts and incorporates by reference paragraphs 1 through 21 above.

23. An actual, justiciable controversy exists between PCG and MSH as to whether PCG has breached its obligations under OA Section 8.3 to maintain the Property in first-class condition, and whether the $8.2 million deferred-maintenance adjustment claimed by MSH is valid and may properly be included in the Fair Market Value determination.

24. PCG has not breached OA Section 8.3. PCG invested $24.3 million in comprehensive renovations between 2017 and 2019, and has maintained reasonable and appropriate annual maintenance and capital expenditure budgets at all times since. The Hotel's strong operating performance, premium market positioning, and high guest satisfaction ratings confirm that the Property has been maintained in first-class condition.

25. The $8.2 million deferred-maintenance claim asserted by MSH is speculative, was never raised prior to this dispute, and is based on a selective and misleading characterization of the Property's physical condition. MSH, as a passive member with consent rights on capital calls exceeding $2 million, never invoked those consent rights to compel additional maintenance spending—an omission that is inconsistent with its

26. The Beacon appraisal's inclusion of the $8.2 million deferred-maintenance adjustment is methodologically improper and serves only to inflate the Fair Market Value conclusion beyond any reasonable measure of market value.

27. PCG seeks a declaration from the Arbitrator that PCG has not breached OA Section 8.3, that the $8.2 million deferred-maintenance claim is without merit, and that no deferred-maintenance adjustment may be included in the Fair Market Value determination.

VIII. PRAYER FOR RELIEF WHEREFORE, Respondent and Counterclaim-Claimant Pellegrino Capital Group LLC respectfully requests that the Arbitrator enter an award as follows:

1. Deny and dismiss all of Claimant Meridian Shores Hospitality LLC's claims asserted in the Demand for Arbitration in their entirety, with prejudice;

2. Enter a declaratory award that the buyout price of $41,300,000 tendered by PCG on March 1, 2023 is the proper Fair Market Value purchase price for MSH's 35% membership interest in Palmetto Grand Ventures LLC under OA Section 12.4, or, in the alternative, that the Fair Market Value of PGV's assets shall be determined through the third-appraiser mechanism set forth in OA Section 12.4(c), and that the buyout price sh

3. Enter a declaratory award that PCG did not exercise the call option in bad faith or with the intent to materially understate Fair Market Value within the meaning of OA Section 12.7, and that no penalty is owed to MSH under that provision;

4. Enter a declaratory award that PCG has not breached its obligations under OA Section 8.3 to maintain the Property in first-class condition, that the $8.2 million deferred-maintenance claim asserted by MSH is without merit, and that no deferred-maintenance adjustment may be included in the Fair Market Value determination;

5. Award PCG its costs of arbitration, including all JAMS filing fees, arbitrator fees and expenses, and other costs incurred in connection with this proceeding;

6. Award such other and further relief as the Arbitrator deems just and proper under the circumstances.