PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Dominic R. Pellegrino, Managing Member, Pellegrino Capital Group LLC
CC: Adriana Pellegrino-Voss, SVP of Investments, Pellegrino Capital Group LLC; Francesca Morano, Partner, Calderwood & Harkness LLP
FROM: Simone Laroche, Lead Associate, Calderwood & Harkness LLP
DATE: October 4, 2023
RE: Witness Preparation for Deposition of Dominic R. Pellegrino — JAMS Ref. No. 1440032871, Meridian Shores Hospitality LLC v. Pellegrino Capital Group LLC
MATTER NO.: 1027-00003
I. Purpose and Scope of This Memorandum
This memorandum is prepared in advance of the deposition of Dominic R. Pellegrino, currently scheduled for October 10, 2023, in connection with the arbitration proceeding captioned Meridian Shores Hospitality LLC v. Pellegrino Capital Group LLC, JAMS Reference No. 1440032871. The deposition will take place at the JAMS Jacksonville Resolution Center, 1 Independent Drive, Suite 1600, Jacksonville, Florida 32202, and is noticed to commence at 9:00 a.m. Eastern Time.
The deposition will be taken by Victoria Castillo, Partner at Hargrove, Dunlap & Castillo LLP, counsel of record for Meridian Shores Hospitality LLC ("MSH"). Ms. Castillo is lead trial counsel for MSH and an experienced litigator in real estate and partnership disputes. We expect her examination to be thorough, well-organized, and at times adversarial. Based on the claims asserted by MSH, the discovery exchanged to date, and the issues raised in the motion-to-compel briefing, we anticipate that Ms. Castillo will devote significant attention to (a) the circumstances surrounding PCG's selection of its appraiser, (b) the allegation of bad faith under Section 12.7 of the Operating Agreement, (c) the deferred-maintenance claim under Section 8.3, and (d) the internal decision-making process at PCG leading to the exercise of the call option.
The purpose of this memorandum is to:
1. Prepare Mr. Pellegrino for all anticipated lines of questioning;
2. Identify sensitive topics and areas of particular risk;
3. Provide guidance on responsive testimony that is truthful, accurate, and protective of PCG's litigation position;
4. Flag areas where the assertion of attorney-client privilege or work-product protection may be necessary; and
5. Outline a pre-deposition preparation schedule to ensure Mr. Pellegrino is fully prepared by the deposition date.
This memorandum is a privileged attorney work-product document. It reflects the mental impressions, legal theories, strategies, and opinions of counsel at Calderwood & Harkness LLP. It is protected by the attorney-client privilege and the work-product doctrine under Florida law and applicable federal common law. This memorandum should not be disclosed to any third party — including, without limitation, Nathaniel Cordero, any representative of MSH, any representative of Linden Park Advisory LLC, or any representative of JAMS — without the prior written consent of Francesca Morano or Simone Laroche.
Francesca Morano (Responsible Partner) and Simone Laroche (Lead Associate) will defend the deposition. Jeffrey Park (Working Associate) will attend in a support capacity, managing exhibits and real-time document review. Ms. Morano will serve as the primary defending attorney on the record.
II. General Deposition Guidelines
The following guidelines apply to Mr. Pellegrino's deposition testimony generally. We will review these principles in detail during the preparation sessions on October 8 and, if necessary, October 9. Mr. Pellegrino should internalize these guidelines so that they become instinctive during the deposition itself.
A. Core Principles
Listen to the entire question before answering. Ms. Castillo is likely to ask compound, multipart, or leading questions designed to elicit admissions. Mr. Pellegrino should not anticipate where a question is going or begin formulating a response before the question is complete. Pausing briefly after each question — even for two or three seconds — before answering is appropriate and advisable. This pause also allows counsel to interpose objections where necessary.
Answer only the question asked. This is the single most important principle of deposition testimony. Mr. Pellegrino should provide a responsive, truthful answer to the specific question posed and then stop. He should not volunteer additional information, offer explanations that were not requested, or attempt to provide context unless directly asked. Every additional word beyond a responsive answer creates potential fodder for cross-examination at the arbitration hearing.
If a question is unclear, ask for it to be rephrased. Mr. Pellegrino is under no obligation to interpret an ambiguous question. If a question is confusing, compound, uses unfamiliar terminology, or assumes facts not in evidence, Mr. Pellegrino should ask Ms. Castillo to rephrase or clarify the question. He should not guess at what is being asked.
"I don't recall" is an appropriate answer when genuinely unable to remember. Mr. Pellegrino should not speculate or reconstruct events from inference when he does not have a genuine, present recollection. If he does not remember a particular conversation, document, date, or detail, he should say so clearly: "I don't recall" or "I don't have a specific recollection of that." However, Mr. Pellegrino should not use "I don't recall" as a reflexive answer to avoid difficult questions when he does, in fact, remember. The answer must be truthful.
Do not adopt opposing counsel's characterizations or paraphrases of documents. Ms. Castillo will likely attempt to summarize documents, paraphrase contract provisions, or characterize prior communications in ways that are favorable to MSH's position. Mr. Pellegrino should not agree with any such characterization without first reviewing the underlying document. If Ms. Castillo refers to a document, Mr. Pellegrino should say, "I'd like to see the document before answering that question." This is his right.
Be truthful and consistent at all times. Any inconsistency between Mr. Pellegrino's deposition testimony and (a) documents in the record, (b) testimony he provides at the arbitration hearing, or (c) testimony of other PCG witnesses will be identified and exploited by opposing counsel. Truthfulness and consistency are not merely ethical obligations — they are essential to PCG's litigation position.
B. Objections and Instructions
Counsel — either Ms. Morano or Ms. Laroche — will make objections on the record as appropriate during the deposition. Under the JAMS Comprehensive Arbitration Rules and the applicable discovery protocols, objections are generally preserved by a brief statement of the grounds (e.g., "Objection, form," "Objection, asked and answered," "Objection, calls for speculation"). In most instances, Mr. Pellegrino will still be required to answer the question notwithstanding the objection. The objection preserves the issue for ruling by the arbitrator at a later date.
In certain limited circumstances, counsel may instruct Mr. Pellegrino not to answer a question. This will occur only where the question seeks information protected by the attorney-client privilege, the work-product doctrine, or another recognized privilege, or where the question is manifestly improper (e.g., harassing, asked solely for purposes of annoyance). If Mr. Pellegrino receives an instruction not to answer, he should follow that instruction and remain silent. He should not attempt to provide a partial answer, paraphrase the privileged information, or indicate the general subject matter of the privileged communication.
Attorney-client privilege applies to all communications between Mr. Pellegrino and attorneys at Calderwood & Harkness LLP (including Ms. Morano, Ms. Laroche, Mr. Park, and any other C&H attorneys who have participated in this matter), as well as any legal advice Mr. Pellegrino received from any other attorney in connection with the PGV joint venture, the call-option exercise, or the arbitration proceeding. Mr. Pellegrino should not disclose the content, substance, or existence of any such communications without a clear instruction from counsel that such disclosure is authorized.
Work-product protection extends to internal memoranda, strategy documents, litigation analyses, draft correspondence, and other materials prepared by or at the direction of counsel in anticipation of litigation or in connection with this arbitration. This memorandum itself is work product and must be treated accordingly.
C. Document Handling
Opposing counsel will almost certainly present documents for identification during the deposition. Ms. Castillo may place a document in front of Mr. Pellegrino and immediately begin asking questions about it. Mr. Pellegrino should take sufficient time to read each document carefully — in its entirety, including any cover pages, headers, footers, and attachments — before answering any questions about the document. This is true even if the document appears familiar.
Mr. Pellegrino should not assume that any document presented by opposing counsel is complete or authentic. Pages may be missing. The document may be a draft rather than a final version. Metadata or contextual information may have been stripped. If Mr. Pellegrino is unsure whether a document is complete, he should say so: "I can't tell whether this is the complete document" or "This appears to be missing pages."
If a document was not authored by Mr. Pellegrino, not sent to Mr. Pellegrino, or not reviewed by Mr. Pellegrino at or near the time of the events described in the document, he should say so. He is under no obligation to testify about the content or meaning of a document he has never seen.
D. Demeanor and Tone
Mr. Pellegrino should remain calm, professional, and measured throughout the deposition. Depositions can be lengthy and, at times, tedious or provocative. Ms. Castillo may attempt to elicit frustration, anger, or defensiveness through repetitive questioning, confrontational phrasing, or loaded characterizations. Mr. Pellegrino should not take the bait. He should maintain the same even tone and measured pace regardless of the question.
Mr. Pellegrino should not display frustration, roll his eyes, sigh audibly, or argue with opposing counsel. Even if a question seems unfair or based on a mischaracterization, Mr. Pellegrino's response should be calm and factual. He should not attempt to "win" the deposition. The deposition is a discovery tool, not a trial. The goal is to provide truthful, careful testimony that does not create material for MSH's case at the arbitration hearing.
If Mr. Pellegrino needs a break at any time — to consult with counsel, to use the restroom, or simply to collect his thoughts — he should say so. Counsel will request an appropriate break. Mr. Pellegrino should not, however, request a break in the middle of a pending question, as opposing counsel may argue that the break was used to coach the witness.
III. Background on the Dispute
The following summary is provided for contextual reference in advance of the preparation sessions. Mr. Pellegrino is already familiar with the facts of the underlying dispute. This section is intended to provide a concise, organized overview that Mr. Pellegrino can use to refresh his recollection on the key dates, parties, and factual milestones.
The Joint Venture. Pellegrino Capital Group LLC ("PCG") holds a sixty-five percent (65%) membership interest in Palmetto Grand Ventures LLC ("PGV"), a Florida limited liability company formed on June 15, 2017, for the purpose of acquiring, owning, and operating The Palmetto Grand Resort & Spa ("the Hotel" or "the Property"), a 312-room luxury beachfront hotel located at 650 Mandalay Avenue, Clearwater Beach, Florida 33767. Meridian Shores Hospitality LLC ("MSH") holds the remaining thirty-five percent (35%) membership interest. Nathaniel "Nate" Cordero is the Managing Member of MSH.
Governance. Under the PGV Operating Agreement, executed June 15, 2017 (the "OA"), PCG serves as the sole Manager of PGV, with broad authority over day-to-day operations, capital expenditures, and major business decisions, subject to certain consent rights retained by MSH (including consent on capital calls exceeding $2 million and certain extraordinary transactions).
The Call Option. The OA includes a call option in Section 12.4, granting PCG the right to purchase MSH's entire membership interest at "Fair Market Value" as determined by an independent MAI-certified appraiser selected by PCG. The call option became exercisable on the fifth anniversary of the OA — June 15, 2022. PCG exercised the call option by delivering written notice to MSH on January 9, 2023.
The Appraisal and Tender. PCG retained Whitfield Realty Advisors LLC ("Whitfield"), led by Gerald K. Whitfield, MAI, to conduct the Fair Market Value appraisal. Whitfield's appraisal, completed on February 10, 2023, 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. Based on this appraisal, PCG calculated MSH's buyout price as $41.3 million — consisting of MSH's 35% share of net equity ($24.29 million) plus MSH's accrued cumulative compounding preferred return ($17.01 million). PCG tendered $41.3 million to MSH on March 1, 2023.
MSH's Rejection. MSH rejected the tender on March 10, 2023. MSH retained Beacon Valuation Group Inc. ("Beacon"), led by Dr. Priya Ramanathan, CFA, ASA, which appraised the Property at $151.5 million as of December 31, 2022 — a divergence of 28.4% from the Whitfield appraisal. This divergence exceeded the 10% threshold under OA Section 12.4(c), triggering the third-appraiser mechanism.
The Arbitration. MSH filed a JAMS Demand for Arbitration on March 20, 2023, alleging that PCG exercised the call option in bad faith and with the intent to materially understate Fair Market Value, in violation of OA Section 12.7. MSH seeks a total purchase price of $70.0 million, which includes an approximately $28.7 million gap over PCG's tender and incorporates a $16.975 million bad-faith penalty. PCG filed its Response and Counterclaim on April 5, 2023, seeking a declaratory ruling that $41.3 million is the proper Fair Market Value buyout price and that the call option was exercised in good faith.
The Neutral Appraiser. Linden Park Advisory LLC ("Linden Park"), led by Thomas Carraway, MAI, FRICS, was jointly retained as the neutral third appraiser on June 1, 2023. Linden Park delivered a preliminary indication of its value range on July 14, 2023: $130.0 million to $138.0 million. This preliminary indication has not been finalized into a formal appraisal report.
Scheduling Note. Nathaniel Cordero's deposition is also scheduled for October 10, 2023, to be taken immediately following the conclusion of Mr. Pellegrino's deposition. The depositions are sequenced in this order pursuant to the parties' agreement. Mr. Pellegrino should be aware that Ms. Castillo may attempt to elicit testimony from Mr. Pellegrino that will be used as the basis for questions to Mr. Cordero later that same day, or vice versa.
IV. Anticipated Areas of Examination
This section identifies the principal topics that we anticipate Ms. Castillo will explore during the deposition, together with the key facts Mr. Pellegrino should be prepared to testify about and specific guidance for each topic area. These topics are organized roughly in the order we expect them to be raised, beginning with background and foundation and progressing to the more sensitive substantive areas.
A. Mr. Pellegrino's Background and Role at PCG
Key Facts to Be Prepared to Testify About
Ms. Castillo will almost certainly begin the deposition with a series of background questions about Mr. Pellegrino personally and his role at PCG. This is standard practice and serves several purposes: it establishes the record, allows opposing counsel to assess Mr. Pellegrino's demeanor and communication style, and lays the foundation for later, more substantive questioning.
Mr. Pellegrino should be prepared to testify about the following:
• He is the Managing Member of Pellegrino Capital Group LLC and controls 100% of PCG's membership interests.
• PCG is a Florida limited liability company functioning as a family office, headquartered at 1900 Bayshore Boulevard, Suite 1400, Tampa, Florida 33606.
• PCG's assets under management are approximately $1.2 billion, deployed across hospitality, multifamily, and alternative-asset strategies.
• Adriana Pellegrino-Voss, Mr. Pellegrino's daughter, serves as Senior Vice President of Investments at PCG and has day-to-day oversight of PCG's hospitality portfolio, including the PGV joint venture.
• Marcus Thiel serves as PCG's Chief Financial Officer and is responsible for financial reporting, accounting oversight, and the preparation of financial analyses related to PCG's investments.
• Mr. Pellegrino maintains an active oversight and decision-making role at PCG, particularly with respect to major investment decisions, capital allocation, and significant transactional matters such as the exercise of the call option. He should be prepared to describe his oversight role in contrast to the day-to-day operational authority delegated to Ms. Pellegrino-Voss and Mr. Thiel.
Guidance. Mr. Pellegrino should answer background questions straightforwardly and without evasion. However, he should keep answers about his personal net worth, other PCG investments, and family dynamics general and should not volunteer specifics beyond what is directly relevant to the PGV joint venture. If asked about other hospitality investments held by PCG, he should answer truthfully but narrowly — providing the name and general nature of the investment if asked directly, but not volunteering financial details, performance metrics, or strategic plans for other properties.
If Ms. Castillo asks about Mr. Pellegrino's educational background, professional history, or prior business experience, he should answer forthrightly. These questions are typically foundational and non-controversial. Mr. Pellegrino should avoid appearing evasive on innocuous topics, as this may cause the arbitrator — if the deposition transcript is read at the hearing — to view him as an uncooperative witness.
B. Formation of the Joint Venture and the Operating Agreement
Key Facts. Ms. Castillo is likely to spend significant time on the formation of the joint venture, the negotiation and execution of the OA, and the parties' respective expectations at the time of formation. These questions lay the groundwork for MSH's argument that the call option was not intended to be used as an instrument of opportunistic acquisition.
Mr. Pellegrino should be prepared to testify about the following:
• PGV was formed on June 15, 2017, as a Florida limited liability company, for the specific purpose of acquiring, owning, and operating the Hotel.
• PGV acquired the Hotel on August 1, 2017, at a purchase price of $87.5 million.
• The acquisition was financed with a $61.25 million loan from Gulf Atlantic National Bank ("GANB"), representing a 70% loan-to-value ratio, under Loan No. CRE-2017-06284. The loan originally carried a floating interest rate of LIBOR plus 2.25%, which was converted to SOFR plus 2.25% in 2022. The loan matures on August 1, 2027.
• Total equity required at acquisition, including approximately $2.3077 million in closing costs, was $28,557,700.
• PCG's capital contribution at acquisition was $18,562,500. MSH's capital contribution at acquisition was $10,000,000. These figures were per the agreed capital contribution basis set forth in OA Section 4.1.
• Between 2017 and 2019, PGV undertook a comprehensive renovation of the Hotel at a total cost of $24.3 million. PCG contributed $15,795,000 toward the renovation; MSH contributed $8,505,000.
• MSH's total capital contributions to the venture (including acquisition equity and renovation capital) were $18,505,000.
• The OA provides for an 8% cumulative compounding preferred return on each member's unreturned capital contributions, with distribution priority as set forth in Section 5.2. The profit-sharing waterfall above the preferred return splits 70% to PCG and 30% to MSH, shifting to 75% to PCG and 25% to MSH above a 15% IRR threshold.
• The Hotel is operated under a franchise agreement with Aurelian Hotels & Resorts Inc. dated July 15, 2017, with a 20-year term. The franchise fee is 5% of gross room revenue, plus a 2% contribution to the Aurelian marketing fund.
Anticipated Questions. Ms. Castillo is likely to probe the following:
• Why did PCG partner with MSH and Cordero? Mr. Pellegrino should be prepared to testify that Cordero brought more than 25 years of experience in Southeast luxury hospitality, including operational expertise, industry relationships, and local market knowledge that complemented PCG's capital and investment-management capabilities.
• What was the understanding regarding the call option at formation? This is a potentially sensitive question. Mr. Pellegrino should describe the call option as one of several provisions in the OA governing the parties' exit and liquidity rights, without suggesting that either party had a specific understanding that the call option would or would not be exercised.
• Who drafted the OA? Mr. Pellegrino should answer factually that the OA was prepared by legal counsel and negotiated between the parties' respective attorneys. He should not disclose the substance of any privileged communications with counsel regarding the negotiation strategy or specific terms of the OA.
• What were the parties' expectations regarding the duration of the partnership? Mr. Pellegrino should testify that the partnership was intended to be a long-term investment but that the OA included mechanisms — including the call option, put option, and buy-sell provisions — to provide liquidity and exit flexibility for both parties.
Guidance. Mr. Pellegrino should emphasize that the OA was negotiated at arm's length between sophisticated parties and that MSH had the benefit of its own independent legal counsel throughout the negotiation process. This framing is important to PCG's position because it undercuts any argument that the call-option provision was one-sided, unconscionable, or not fully understood by MSH.
Mr. Pellegrino should not characterize the call option as "always intended" to be exercised or suggest that it was a foregone conclusion at the time of formation that PCG would ultimately acquire MSH's interest. Such testimony would be used by MSH to argue that the entire venture was designed to exploit MSH's capital contribution and operational expertise before buying MSH out at a discount.
If Ms. Castillo asks about pre-formation communications between Mr. Pellegrino and Cordero — including discussions about deal terms, expectations, or the call option — Mr. Pellegrino should answer factually. These communications occurred before the retention of counsel in most instances and are likely not protected by the attorney-client privilege. Mr. Pellegrino should answer honestly but should avoid characterizing these early discussions in ways that create binding commitments or expectations beyond what is reflected in the executed OA.
C. Decision to Exercise the Call Option
Key Facts.
• The call option under OA Section 12.4 became exercisable on June 15, 2022, the fifth anniversary of the Operating Agreement.
• PCG delivered the Call-Option Exercise Notice to MSH on January 9, 2023, approximately seven months after the option became exercisable.
• OA Section 12.4 grants PCG the right to purchase MSH's entire membership interest in PGV at "Fair Market Value," as determined by an independent MAI-certified appraiser selected by PCG. The valuation date is fixed by the OA as the end of the most recently completed fiscal year — in this case, December 31, 2022.
Anticipated Questions. Ms. Castillo will probe the decision-making process leading to the exercise of the call option in considerable detail. We anticipate the following lines of questioning:
• When did Mr. Pellegrino first consider exercising the call option? Ms. Castillo will want to establish whether the decision was made well in advance of the formal notice and whether it was part of a broader plan. Mr. Pellegrino should answer honestly about when the possibility first entered his consideration.
• What prompted the decision? Mr. Pellegrino should be prepared to identify legitimate business rationales, including the desire to consolidate ownership of the Hotel, simplification of governance and decision-making within PGV, alignment with PCG's broader portfolio strategy, and similar considerations.
• Did Mr. Pellegrino discuss the call option with anyone before deciding? Mr. Pellegrino should be prepared to identify Adriana Pellegrino-Voss and Marcus Thiel as individuals with whom he discussed the decision in the ordinary course of PCG's internal business processes. He should be careful not to disclose any communications with Calderwood & Harkness LLP or other legal counsel regarding the advisability, timing, or mechanics of the call-option exercise.
• Did PCG consider the impact on MSH or Cordero? Ms. Castillo may frame this question to suggest that PCG acted without regard for MSH's interests. Mr. Pellegrino should acknowledge that the call option was a contractual right and that the OA's buyout mechanics — including the FMV appraisal process, the preferred return, and the third-appraiser mechanism — were designed to protect both parties.
• Was the timing of the exercise related to any particular market conditions or hotel performance metrics? This is a key question. Ms. Castillo will attempt to establish that PCG timed the call-option exercise to coincide with conditions that would produce a lower valuation. Mr. Pellegrino should be prepared to explain that the call option became exercisable on a fixed date and was exercised in due course.
• Did anyone at PCG discuss the call option with Cordero or anyone at MSH before the formal notice? If there were pre-notice conversations, Mr. Pellegrino should describe them factually. If there were no such conversations, he should say so.
Guidance. Mr. Pellegrino should frame the decision to exercise the call option as a legitimate exercise of a contractual right that was available to PCG under the terms of the OA. The decision was made in good faith, consistent with PCG's investment strategy, and implemented through the contractual process established in the OA.
Mr. Pellegrino should not suggest that the decision was motivated by a desire to acquire the Property "cheaply," to take advantage of MSH, or to exploit any market dislocation. Any such testimony would directly support MSH's bad-faith claim under OA Section 12.7.
If asked about conversations with counsel regarding the call-option exercise, Mr. Pellegrino should assert attorney-client privilege. He should say: "I discussed the call option with my attorneys, and those conversations are privileged."
If Ms. Castillo asks whether the timing of the exercise was influenced by an expectation of lower valuations, Mr. Pellegrino should answer carefully. He should note that:
1. The call option became exercisable on June 15, 2022, a date fixed by the OA;
2. The valuation date under the OA is December 31, 2022, also fixed by the OA;
3. The Hotel's 2022 financial performance was strong — $62.8 million in revenue, $289 RevPAR, $18.4 million NOI, and $19.7 million EBITDA.
These facts directly undercut any suggestion that PCG was attempting to exploit a depressed market. The Hotel's 2022 performance was robust by any measure, and the valuation date was not selected by PCG — it was determined by the contractual formula in the OA.
D. Selection of Whitfield Realty Advisors LLC
Key Facts.
• PCG retained Whitfield Realty Advisors LLC to conduct the Fair Market Value appraisal pursuant to OA Section 12.4. The firm is led by Gerald K. Whitfield, MAI, and is located at 500 East Broward Boulevard, Suite 900, Fort Lauderdale, Florida 33394.
• The Whitfield appraisal was completed on February 10, 2023.
• Whitfield 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.
• Whitfield's methodology included the income approach (direct capitalization at a 9.5% capitalization rate and a discounted cash flow analysis at a 10.75% discount rate, blended) and the sales comparison approach, with a weighting of 40% to the income approach and 60% to the sales comparison approach.
Anticipated Questions — High Sensitivity
Ms. Castillo will devote significant attention to the appraiser-selection process. This line of questioning is central to MSH's bad-faith theory. We expect the following questions, among others:
• How and why was Whitfield selected? Ms. Castillo will want to know the criteria PCG used to select Whitfield and whether other appraisers were considered.
• Had PCG used Whitfield before? If PCG has a prior professional relationship with Whitfield, Ms. Castillo will explore whether that relationship influenced the selection and whether Whitfield had any economic incentive to produce a result favorable to PCG.
• Did PCG interview multiple appraisers? If so, Ms. Castillo will want to know who else was considered and why Whitfield was ultimately selected. If Whitfield was the only firm considered, she will argue that PCG failed to conduct a competitive or objective selection process.
• Did PCG communicate any desired valuation outcome to Whitfield? This is a critical question. Any communication of a target number, a desired range, or an expectation of outcome would be devastating to PCG's position.
• Did Mr. Pellegrino or anyone at PCG review the Whitfield appraisal before it was finalized? Ms. Castillo is looking for evidence that PCG influenced the appraisal's conclusions.
• Did PCG request any changes to the Whitfield appraisal? Any changes to a draft appraisal requested by PCG will be scrutinized closely.
• Was Mr. Pellegrino aware of the specific cap rate (9.5%) or discount rate (10.75%) before the appraisal was completed? Knowledge of specific valuation assumptions before the appraisal was finalized could suggest that PCG was influencing the methodology.
Guidance — CRITICAL AREA
This is the most sensitive line of questioning with respect to MSH's bad-faith allegation under OA Section 12.7. Mr. Pellegrino's testimony on this topic will be a central piece of evidence at the arbitration hearing. The following guidance should be followed carefully:
Mr. Pellegrino should testify that Whitfield was selected based on professional qualifications, including Mr. Whitfield's MAI certification, his extensive experience with Gulf Coast luxury hospitality properties, and his reputation in the appraisal community. If PCG has used Whitfield on prior engagements, this should be characterized as evidence of confidence in Whitfield's professional capabilities, not as evidence of a "friendly" relationship designed to produce a predetermined result.
Mr. Pellegrino should state affirmatively that PCG did not communicate a target valuation or desired outcome to Whitfield. He should testify that he understood Whitfield's role as an independent appraiser and that he expected Whitfield to exercise independent professional judgment in reaching his conclusions.
If PCG provided factual information to Whitfield during the appraisal process — such as operating data, property descriptions, capital-expenditure records, or financial statements — Mr. Pellegrino should explain that this information was provided to assist the appraiser in understanding the property, not to direct the appraiser's conclusions. Providing factual data to an appraiser is standard practice and does not constitute improper influence.
If PCG reviewed a draft appraisal before the final report was issued, Mr. Pellegrino should be prepared to explain the nature of any comments or feedback provided. If PCG's comments were limited to factual corrections (e.g., correcting a room count, updating a revenue figure), this is appropriate and standard. If PCG provided substantive comments on valuation methodology or conclusions, this area requires careful preparation, and we will need to review the specific communications with Mr. Pellegrino during the preparation sessions.
Mr. Pellegrino should absolutely not testify that PCG selected Whitfield because PCG expected Whitfield to produce a lower valuation. Even if that consideration existed in the abstract, such testimony would be directly and materially damaging to PCG's defense of the bad-faith claim.
If Whitfield was the only appraiser considered, Mr. Pellegrino should acknowledge that fact but explain that the selection was based on Whitfield's well-known qualifications and PCG's confidence in his professional abilities. There is no requirement under the OA that PCG conduct a competitive selection process among multiple appraisers.
Finally, Mr. Pellegrino should be aware that the arbitrator's ruling on MSH's motion to compel, entered on November 30, 2023, partially granted MSH's request for production of internal investment-committee memoranda. To the extent that any such memoranda reflect internal discussions of valuation expectations, Mr. Pellegrino must be prepared to provide context. We will review all documents produced under that order with Mr. Pellegrino during the October 6 and October 8 preparation sessions to ensure that his testimony is consistent with the documentary record.
E. Capital Expenditures and Deferred Maintenance (OA Section 8.3)
Key Facts.
• OA Section 8.3 imposes an affirmative obligation on the Manager (PCG) to maintain the Property in "first-class condition" consistent with the standards of comparable luxury beachfront hotels in the Clearwater Beach and greater Tampa Bay market.
• PGV invested $24.3 million in a comprehensive renovation of the Hotel between 2017 and 2019. PCG contributed $15,795,000 toward this renovation; MSH contributed $8,505,000.
• MSH, through the Beacon appraisal, claims that approximately $8.2 million in deferred maintenance items existed as of the valuation date (December 31, 2022) and should have been funded by PCG. Beacon included this $8.2 million as a negative valuation adjustment in its appraisal, effectively increasing the gap between the Beacon and Whitfield valuations.
• MSH alleges both that PCG's failure to fund these items constituted a breach of the maintenance obligation under OA Section 8.3 and that the failure to fund these items suppressed the Hotel's value at the time the call option was exercised — thereby supporting the bad-faith claim.
Anticipated Questions. Ms. Castillo is likely to explore the following:
• What capital expenditures has PCG authorized since the completion of the 2017–2019 renovation? Mr. Pellegrino should be prepared to discuss the general categories and approximate amounts of post-renovation capital spending.
• How were capital-expenditure decisions made? Who had authority? PCG, as sole Manager, had authority over capital-expenditure decisions under the OA, subject to MSH's consent right on capital calls exceeding $2 million.
• Was Mr. Pellegrino aware of any deferred maintenance items? Specific items that MSH is likely to raise include: (a) roof repairs or replacement on the north wing; (b) HVAC system upgrades to guest-room units; (c) spa facility renovations; and (d) meeting-space technology upgrades.
• Did MSH or Cordero ever raise deferred maintenance concerns with PCG? If so, Ms. Castillo will want to know when, in what form, and how PCG responded.
• Did PCG's budget include reserves for FF&E and maintenance? What percentage of revenue was allocated? Industry standards for luxury hotels typically call for FF&E reserves of 4–5% of total revenue.
• Were any capital calls made for maintenance after 2019? This question is significant because MSH has consent rights on capital calls exceeding $2 million. If PCG did not make capital calls for maintenance, Ms. Castillo may argue that PCG avoided triggering MSH's consent rights in order to allow the property to deteriorate.
Guidance. Mr. Pellegrino should emphasize the $24.3 million renovation completed between 2017 and 2019 as strong evidence of PCG's commitment to maintaining the Hotel at first-class standards. This was a substantial investment — approximately 28% of the original acquisition price — and the renovation addressed the major capital-improvement needs of the property.
If a regular capital-expenditure or FF&E reserve budget existed, Mr. Pellegrino should reference it and describe PCG's approach to ongoing maintenance and capital investment. If the reserve percentage was consistent with industry norms, this strengthens PCG's position.
If specific maintenance items were deferred, Mr. Pellegrino should be prepared to provide a legitimate business justification for the deferral. Appropriate justifications include:
• The COVID-19 pandemic's severe impact on the hospitality industry in 2020 and 2021, which required PCG to prioritize cash preservation and operational continuity over discretionary capital spending;
• The prioritization of capital expenditures based on safety, guest experience, and revenue impact;
• The timing of vendor availability, permitting, and seasonal operating considerations;
• The Manager's exercise of reasonable business judgment in allocating limited capital resources.
Mr. Pellegrino should not concede that any particular deferred-maintenance item constituted a breach of OA Section 8.3. The "first-class condition" standard involves a degree of managerial discretion, and reasonable managers may disagree about the timing and prioritization of capital expenditures.
If Cordero raised maintenance concerns in writing — through email, letter, or other documented communication — Mr. Pellegrino should acknowledge receipt of any such communications but characterize PCG's response as reasonable and within the scope of the Manager's business judgment. If PCG investigated the concerns and determined that the items were either not yet critical or were being addressed through the regular maintenance program, Mr. Pellegrino should say so.
Critical point: Mr. Pellegrino should not suggest that capital expenditures were deliberately withheld in order to depress the Property's value in advance of the call-option exercise. Such testimony would be catastrophic to PCG's defense and would directly support MSH's bad-faith claim. If pressed on this point, Mr. Pellegrino should deny any such intent clearly and affirmatively.
F. The Valuation Dispute and Buyout Calculation
Key Facts to Be Prepared to Walk Through
Mr. Pellegrino should be prepared to testify about the mechanics of the buyout calculation and the basis for the $41.3 million tender. The key figures are as follows:
The preferred return calculation — 8% cumulative compounding on MSH's total capital contributions of $18,505,000 over approximately 5.42 years — was computed in accordance with the mechanics set forth in OA Section 5.2 and verified by Grantham, Pryce & Associates CPAs.
By comparison, MSH's demanded purchase price is $70.0 million, based on the following:
The divergence between the Whitfield and Beacon appraisals is $33.5 million, or 28.4%. This exceeded the 10% threshold under OA Section 12.4(c), which triggered the appointment of a neutral third appraiser. Linden Park Advisory LLC was jointly retained on June 1, 2023, and delivered a preliminary indication of value on July 14, 2023, reflecting a range of $130.0 million to $138.0 million. This preliminary indication has not been finalized into a formal appraisal report.
Anticipated Questions.
• Did Mr. Pellegrino review the buyout calculation before the tender was made? He should answer truthfully about his level of involvement in reviewing and approving the calculation.
• Who prepared the calculation? Marcus Thiel, CFO, prepared the calculation, with verification by Grantham, Pryce & Associates CPAs. Legal review was provided by Calderwood & Harkness LLP. If asked about the legal review component, Mr. Pellegrino should assert attorney-client privilege.
• Did Mr. Pellegrino believe the $41.3 million was a fair price? Mr. Pellegrino should express a genuine belief that the tender was a good-faith, contractually compliant offer based on an independent MAI appraisal.
• Was Mr. Pellegrino aware that the Whitfield appraisal was significantly below what MSH's appraiser ultimately concluded? Mr. Pellegrino should testify that he was not aware of the Beacon appraisal or its conclusions at the time the tender was made. He relied on Whitfield's independent professional judgment.
• What was Mr. Pellegrino's reaction to the Beacon appraisal at $151.5 million? He should testify that he was surprised by the magnitude of the divergence but recognized that different appraisers may reach different conclusions based on different methodologies and assumptions.
• What was his reaction to the Linden Park preliminary range of $130.0–$138.0 million? He should testify that the Linden Park preliminary indication was noted but has not been finalized, and that he continues to believe the Whitfield appraisal was conducted professionally and in good faith.
Guidance. Mr. Pellegrino should testify that the buyout calculation followed the contractual formula in OA Section 12.4 and was based on an independent, MAI-certified appraisal. The calculation was not a unilateral determination by PCG; it was the product of the process prescribed by the parties' agreement.
Mr. Pellegrino should express a genuine belief that the $41.3 million tender was a good-faith attempt to comply with the OA. He believed the Whitfield appraisal was reliable, he believed the calculation was accurate, and he believed the tender amount fairly reflected MSH's contractual entitlement.
If asked whether Mr. Pellegrino thought the Whitfield appraisal might be on the lower end of the range of reasonable values, he can acknowledge that reasonable appraisers may reach different conclusions, but he relied on Whitfield's professional judgment and had no reason to believe the Whitfield appraisal was unreliable or inadequate.
Mr. Pellegrino should not concede that the $41.3 million was known to be inadequate at the time it was tendered. Such a concession would be tantamount to an admission of bad faith.
On the Linden Park preliminary range ($130.0 million to $138.0 million): Mr. Pellegrino should note that the neutral appraiser's preliminary indication was just that — preliminary. It was not finalized into a formal appraisal report, it was not subject to the quality-control review that a final report would undergo, and it should not be treated as the definitive determination of Fair Market Value. Mr. Pellegrino should not accept the Linden Park preliminary range as establishing the "true" FMV of the Property.
G. Alleged Bad Faith Under OA Section 12.7
Key Facts. OA Section 12.7 provides:
"If the Manager exercises the call option set forth in Section 12.4 in bad faith or with the intent to materially understate the Fair Market Value of the redeemed interest, the purchase price for such interest shall include a penalty of up to twenty-five percent (25%) of the Fair Market Value of the redeemed interest, as determined by the Arbitrator."
MSH claims a penalty of $16.975 million under this provision, which it calculated as approximately 32% of MSH's equity share plus accrued preferred return (i.e., ($36,015,000 + $17,010,000) × 0.32). PCG's position is that no bad faith occurred, that the Whitfield appraisal was an independent, professionally conducted valuation, and that no penalty is warranted.
Anticipated Questions. Ms. Castillo will probe the bad-faith allegation directly and aggressively. We expect the following questions, among others:
• Did Mr. Pellegrino have any intent to understate the Fair Market Value of the Property? This is the central question of the case.
• Did Mr. Pellegrino direct, suggest, or imply to anyone — Whitfield, PCG staff, or otherwise — that the valuation should be lower than what the market would support?
• Were there any internal PCG documents, emails, or memoranda discussing a strategy to acquire MSH's interest at below Fair Market Value?
• Did Mr. Pellegrino ever express a desire to "buy out Cordero cheaply" or words to that effect? Ms. Castillo may quote from specific documents or emails. Mr. Pellegrino should ask to see any document before confirming or denying its contents.
Guidance — HIGHEST SENSITIVITY
This is the most critical topic area of the entire deposition. Mr. Pellegrino's testimony on bad faith will likely be the single most important piece of evidence at the arbitration hearing. The following guidance must be followed with the utmost care:
Mr. Pellegrino must affirmatively and unequivocally deny any intent to understate Fair Market Value. His testimony should be clear, direct, and unwavering: "I did not have any intent to understate the Fair Market Value of the Property. I did not direct, suggest, or imply to anyone that the valuation should be lower than what the market would support."
He should testify that he relied on Whitfield as a qualified, independent appraiser and accepted Whitfield's professional conclusions. He understood that Whitfield was bound by professional standards and ethical obligations as an MAI-designated appraiser and that Whitfield's conclusions reflected his independent professional judgment.
If there are any internal communications — emails, memoranda, text messages, or other documents — that could be construed as reflecting a desire for a lower valuation, Mr. Pellegrino needs to be prepared to provide context and explain that any internal discussion of valuation expectations is fundamentally different from directing an appraiser to reach a predetermined conclusion. It is entirely normal for a principal in a transaction to have internal expectations or hopes regarding valuation outcomes. Having such expectations does not constitute bad faith. What would constitute bad faith is communicating those expectations to the appraiser with the intent to influence the appraiser's conclusions.
Critical reminder: The arbitrator's ruling on MSH's motion to compel, entered on November 30, 2023, partially granted MSH's request for production of certain internal investment-committee memoranda. These memoranda may have been or may be produced to opposing counsel before the deposition. We must review every document produced under that order with Mr. Pellegrino during the preparation sessions to ensure that his testimony is fully consistent with the documentary record. Any inconsistency between Mr. Pellegrino's testimony and the contents of produced documents will be identified and exploited by Ms. Castillo.
The bad-faith standard under Florida law, as interpreted in the context of contractual provisions like OA Section 12.7, requires more than a mere disagreement over value. It requires evidence of intentional manipulation, dishonesty, or a deliberate scheme to undervalue the property. A good-faith difference of opinion between qualified appraisers does not, standing alone, establish bad faith. Mr. Pellegrino's testimony should reflect a genuine, good-faith process: PCG retained a qualified, independent appraiser; PCG provided factual information to assist the appraiser; PCG accepted the appraiser's conclusions; and PCG tendered the contractually required purchase price based on those conclusions.
H. Relationship with Nathaniel Cordero and MSH
Anticipated Questions. Ms. Castillo is likely to explore the personal and professional relationship between Mr. Pellegrino and Cordero, looking for evidence of personal animus, prior disputes, or a pattern of behavior that could support the bad-faith narrative:
• How did Mr. Pellegrino and Cordero meet? What is the nature and duration of their professional relationship?
• Were there any disputes or disagreements prior to the call-option exercise? If so, what were the subjects of those disputes, and how were they resolved?
• Did Mr. Pellegrino discuss the call option with Cordero before or after the January 9, 2023 notice? If so, what was said?
• What was the nature of communications between the parties after MSH rejected the tender on March 10, 2023? Were there settlement discussions? Were they acrimonious?
• Did Mr. Pellegrino have any personal animus toward Cordero? Did any personal disagreement influence the decision to exercise the call option?
Guidance. Mr. Pellegrino should characterize the relationship with Cordero as a professional business partnership. The parties came together to pursue a specific investment opportunity, and the OA governed their respective rights and obligations.
If there were prior disagreements — over operational decisions, capital expenditures, distributions, or other matters — Mr. Pellegrino should acknowledge them if asked but frame them as normal business differences that were resolved in the ordinary course of the partnership's operations. Disagreements between joint-venture partners are common and expected; they do not evidence bad faith.
Mr. Pellegrino should not display personal hostility toward Cordero during the deposition. Even if the relationship has deteriorated as a result of this dispute, Mr. Pellegrino should maintain a neutral, professional, and respectful tone when discussing Cordero. Any appearance of personal animosity could be used to argue that the call-option exercise was motivated by a desire to punish or disadvantage Cordero rather than by legitimate business considerations.
If there were pre-notice conversations about the call option between Mr. Pellegrino and Cordero, Mr. Pellegrino should describe them factually — what was said, when, and by whom. He should not speculate about Cordero's understanding or intentions.
I. Insurance Coverage and Defense
Anticipated Questions. Ms. Castillo may ask about PCG's insurance coverage and whether the defense of this arbitration is being funded, in whole or in part, by an insurance carrier:
• Is PCG's defense being funded in part by insurance? This question may reference Atlantic Omnivrel Insurance Company, Policy No. AFML-2022-08745, which is a $10 million per occurrence/aggregate managers' liability policy.