JAMS ARBITRATION
JAMS, Jacksonville, FL Resolution Center
JAMS Ref. No. 1440032871
Before the Honorable Margaret Liu Chen (Ret.), Arbitrator
MERIDIAN SHORES HOSPITALITY LLC, a Delaware limited liability company,
Claimant,
v.
PELLEGRINO CAPITAL GROUP LLC, a Florida limited liability company,
Respondent/Counter-Claimant.
RESPONDENT/COUNTER-CLAIMANT PELLEGRINO CAPITAL GROUP LLC'S FIRST SET OF INTERROGATORIES TO CLAIMANT MERIDIAN SHORES HOSPITALITY LLC
Propounding Party:
Pellegrino Capital Group LLC ("PCG"), by and through its counsel of record:
Calderwood & Harkness LLP 801 Brickell Avenue, Suite 2800 Miami, FL 33131 Telephone: (305) 555-7200 Facsimile: (305) 555-7201
Francesca Morano, Responsible Partner Samuel Eklund, Billing Partner Simone Laroche, Lead Associate Jeffrey Park, Working Associate
Responding Party:
Meridian Shores Hospitality LLC ("MSH"), a Delaware limited liability company, with its principal place of business at 220 Royal Palm Way, Suite 300, Palm Beach, FL 33480, through its counsel of record:
Hargrove, Dunlap & Castillo LLP 1395 Brickell Avenue, Suite 3100 Miami, FL 33131
Victoria Castillo, Partner Ryan Matsuda, Senior Associate
Date Propounded: June 23, 2023
Calderwood & Harkness Matter No.: 1027-00003
PRELIMINARY STATEMENT
Respondent/Counter-Claimant Pellegrino Capital Group LLC ("PCG"), by and through its undersigned counsel, Calderwood & Harkness LLP, hereby propounds this First Set of Interrogatories upon Claimant Meridian Shores Hospitality LLC ("MSH") pursuant to the JAMS Comprehensive Arbitration Rules and Procedures, Rule 17, and the discovery schedule established by the Honorable Margaret Liu Chen (Ret.) at the preliminary conference held on May 15, 2023 (the "Scheduling Order"). The Scheduling Order authorized the parties to propound written interrogatories, requests for production of documents, and requests for admission, subject to the limitations and deadlines set forth therein.
These Interrogatories are directed to the substantive claims and defenses at issue in this arbitration, including but not limited to (i) the Fair Market Value of 100% of the assets of Palmetto Grand Ventures LLC as of December 31, 2022; (ii) the validity and propriety of PCG's exercise of the Call Option under Section 12.4 of the Operating Agreement; (iii) MSH's allegation that PCG exercised the Call Option in bad faith or with intent to materially understate Fair Market Value; (iv) MSH's claimed entitlement to a bad-faith penalty under Section 12.7 of the Operating Agreement; (v) the proper buyout price for MSH's 35% membership interest in PGV; and (vi) MSH's claimed damages of $70,000,000.
MSH is required to serve its responses to these Interrogatories within thirty (30) days of service, or such other time as may be ordered by the Arbitrator. If MSH requires additional time to respond, PCG requests that MSH promptly confer with undersigned counsel regarding a reasonable extension.
DEFINITIONS
As used in these Interrogatories, the following terms shall have the meanings set forth below. These definitions are intended to supplement, and not to limit, the ordinary meanings of the terms defined herein. Where a defined term is used in conjunction with other language, the definition shall apply to the defined term without altering the meaning of any surrounding language.
1. "Claimant" or "MSH" means Meridian Shores Hospitality LLC, a Delaware limited liability company, with its principal place of business at 220 Royal Palm Way, Suite 300, Palm Beach, FL 33480, and includes its members, officers, managers, employees, agents, representatives, attorneys, predecessors, successors, and assigns.
2. "Respondent" or "PCG" means Pellegrino Capital Group LLC, a Florida limited liability company, with its headquarters at 1900 Bayshore Boulevard, Suite 1400, Tampa, FL 33606, and includes its members, officers, managers, employees, agents, representatives, attorneys, predecessors, successors, and assigns.
3. "PGV" or "the JV" means Palmetto Grand Ventures LLC, a Florida limited liability company, Florida Filing No. L17000124583, Employer Identification Number 82-5063921, the joint venture entity formed by PCG and MSH for the purpose of acquiring, renovating, and operating the Hotel.
4. "The Hotel" or "the Property" means The Palmetto Grand Resort & Spa, located at 650 Mandalay Avenue, Clearwater Beach, FL 33767, a 312-room (including 42 suites) full-service luxury beach resort owned by PGV.
5. "Operating Agreement" or "OA" means the Operating Agreement of Palmetto Grand Ventures LLC, effective June 15, 2017, by and between PCG and MSH, as the same may have been amended, modified, restated, or supplemented from time to time.
6. "Call Option" means the call option set forth in Section 12.4 of the Operating Agreement, pursuant to which PCG, as Manager of PGV, has the right, exercisable at any time after the fifth anniversary of the effective date of the Operating Agreement, to purchase MSH's 35% membership interest in PGV at a price based on Fair Market Value as determined in accordance with the procedures specified therein.
7. "Call-Option Notice" means PCG's written notice exercising the Call Option, delivered to MSH on January 9, 2023, in accordance with OA Section 12.4(a).
8. "Valuation Date" means December 31, 2022, the date as of which Fair Market Value is to be determined for purposes of the Call Option, as specified in OA Section 12.4(b).
9. "Whitfield Appraisal" means the appraisal completed by Whitfield Realty Advisors LLC, by Gerald K. Whitfield, MAI, of 500 East Broward Boulevard, Suite 900, Fort Lauderdale, FL 33394, dated February 10, 2023, which concluded that the Fair Market Value of 100% of PGV's assets as of December 31, 2022 was $118,000,000.
10. "Beacon Appraisal" means the appraisal completed by Beacon Valuation Group Inc., by Dr. Priya Ramanathan, CFA, ASA, of 2600 South Bayshore Drive, Suite 1050, Miami, FL 33133, dated April 14, 2023, which concluded that the Fair Market Value of 100% of PGV's assets as of December 31, 2022 was $151,500,000.
11. "Fair Market Value" or "FMV" means Fair Market Value as defined in OA Section 12.4, which provides, in pertinent part, that Fair Market Value shall mean the price at which 100% of PGV's assets would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts, determined as of the Valuation Date.
12. "Bad-Faith Penalty" means the penalty provision set forth in OA Section 12.7, which provides that if the Arbitrator or other trier of fact determines that the Manager exercised the Call Option in bad faith or with the intent to materially understate Fair Market Value, the Manager shall pay to the non-managing member a penalty of up to 25% of the determined Fair Market Value of the redeemed interest, in addition to the buyout price otherwise owing.
13. "Demand" means Claimant's Demand for Arbitration, filed with JAMS on March 20, 2023, together with all exhibits and attachments thereto.
14. "Aurelian Franchise Agreement" means the franchise agreement between PGV and Aurelian Hotels & Resorts Inc., dated July 15, 2017, with a 20-year term expiring July 14, 2037, providing for franchise fees of 5% of gross room revenue plus a 2% marketing fund contribution, as the same may have been amended, modified, or supplemented.
15. "Document" or "Documents" means all writings and electronically stored information of every kind and description, whether printed, handwritten, typed, or otherwise produced or reproduced, including but not limited to correspondence, letters, memoranda, emails, text messages, instant messages, other electronic communications, notes, reports, appraisals, analyses, financial statements, spreadsheets, workbooks, models, charts, graphs, presentations, term sheets, draft agreements, executed agreements, amendments, supplements, side letters, invoices, receipts, cancelled checks, wire transfer confirmations, calendars, diaries, appointment books, photographs, video or audio recordings, and data stored on any computer, server, mobile device, cloud platform, or other electronic medium.
16. "Communication" or "Communications" means any oral or written exchange of information, including but not limited to conversations, meetings, telephone calls, video conferences, emails, text messages, instant messages, letters, memoranda, and any other mode of transmitting or receiving information.
17. "Person" or "Persons" means any natural person, corporation, limited liability company, partnership, joint venture, association, trust, estate, governmental body or agency, firm, or other entity or organization.
18. "You," "Your," "Yourself" means Meridian Shores Hospitality LLC, including its members, officers, managers, employees, agents, representatives, attorneys, and any person acting or purporting to act on its behalf, specifically including, without limitation, Nathaniel "Nate" Cordero and Elena Cordero.
19. "Identify" means:
(a) When used with respect to a natural person, provide the person's full legal name, title or position, employer or business affiliation, current business address, telephone number, email address, and relationship to MSH or PGV;
(b) When used with respect to an entity, provide the entity's full legal name, form of organization, state of organization, principal place of business, and the name and title of the person(s) most knowledgeable regarding the subject matter at issue;
(c) When used with respect to a document, provide the date, author(s), recipient(s), title or subject matter, Bates number(s) (if produced), and the custodian or location of the document;
(d) When used with respect to a communication, provide the date, participants, medium (e.g., email, telephone, in-person meeting), and a description of the substance of the communication.
INSTRUCTIONS
1. Scope and Authority. These Interrogatories are propounded pursuant to JAMS Comprehensive Arbitration Rules and Procedures, Rule 17, and the Scheduling Order entered by the Arbitrator on May 15, 2023. MSH is required to respond to each Interrogatory fully, separately, and in writing, under oath, within thirty (30) days of service of these Interrogatories, or within such other time as may be ordered by the Arbitrator.
2. Duty to Answer Fully. Each Interrogatory shall be answered separately, completely, and in good faith, based on all information reasonably available to MSH, including information in the possession, custody, or control of MSH's members, officers, managers, employees, agents, representatives, attorneys (to the extent not protected by privilege), and any other person acting on its behalf.
3. Continuing Obligation to Supplement. Each Interrogatory is continuing in nature. MSH is required to supplement its responses promptly if and when additional or corrective information becomes available, and in any event no later than thirty (30) days before the commencement of the arbitration hearing, or as otherwise ordered by the Arbitrator.
4. Partial Answers. If any Interrogatory cannot be answered in full, MSH shall answer to the extent possible and shall state with specificity the reason(s) why a complete answer cannot be provided, the efforts undertaken to obtain the information needed for a complete answer, and the identity of any person or entity believed to possess the information necessary for a complete response.
5. Objections. If MSH objects to any Interrogatory, MSH shall state the objection with particularity, specifying the grounds therefor, and shall nonetheless answer the Interrogatory to the extent not objectionable. A general or boilerplate objection, without a particularized explanation, shall be deemed insufficient. The assertion of an objection shall not relieve MSH of its obligation to provide all responsive information not encompassed by the objection.
6. Privilege. If MSH withholds any information on the basis of attorney-client privilege, work-product protection, or any other privilege or immunity, MSH shall provide a privilege log in accordance with the Scheduling Order, identifying: (a) the date of the communication or document; (b) the author(s) and recipient(s); (c) the general subject matter; (d) the specific privilege or protection claimed; and (e) the factual basis for the claim of privilege.
7. Verification. Responses to these Interrogatories must be verified under oath by a duly authorized representative of MSH having personal knowledge of the facts, or, where appropriate, by counsel on behalf of MSH as to matters within counsel's knowledge.
8. Defined Terms. All defined terms set forth in the Definitions section above shall apply throughout these Interrogatories. To the extent any term used herein is also defined in the Operating Agreement, the definition in the Operating Agreement shall control unless otherwise specified.
9. Time Period. Unless otherwise specified in an individual Interrogatory, each Interrogatory covers the period from June 15, 2017 (the effective date of the Operating Agreement) through the date of MSH's response.
10. Construction. These Interrogatories shall be construed broadly so as to elicit the maximum amount of information available. The terms "and" and "or" shall be construed disjunctively or conjunctively as necessary to make each Interrogatory inclusive rather than exclusive. The singular shall include the plural and vice versa. The use of a verb in any tense shall be construed as encompassing all tenses.
INTERROGATORIES
INTERROGATORY NO. 1
Identity and Roles of MSH's Members, Officers, and Agents
State the full legal name, title or position, percentage ownership interest (if any), and role in the management, operations, or affairs of Meridian Shores Hospitality LLC for each member, officer, manager, employee, agent, consultant, or representative of MSH during the period from June 15, 2017 through the present date. For each such person, also state: (a) the dates of his or her affiliation with MSH; (b) whether the person has any direct or indirect ownership interest in PGV apart from his or her interest in MSH; (c) the nature and scope of his or her authority to act on behalf of MSH; and (d) whether the person had any involvement in or knowledge of the negotiations or execution of the Operating Agreement, the Call-Option Notice, the retention of Beacon Valuation Group Inc., or the filing of the Demand. This Interrogatory encompasses, but is not limited to, Nathaniel "Nate" Cordero and Elena Cordero.
INTERROGATORY NO. 2
Factual Basis for Bad-Faith Allegation Under OA Section 12.7
Describe in detail all facts, circumstances, events, communications, documents, and other evidence upon which MSH relies to support its allegation, as set forth in the Demand and as asserted in this arbitration, that Pellegrino Capital Group LLC exercised the Call Option under OA Section 12.4 "in bad faith or with the intent to materially understate Fair Market Value" within the meaning of OA Section 12.7, including but not limited to the following:
(a) The specific conduct, actions, statements, or omissions by PCG, its members (including Dominic R. Pellegrino), its officers (including Adriana Pellegrino-Voss, Chief Operating Officer, and Marcus Thiel, Chief Financial Officer), its agents, employees, or representatives that MSH contends constitute bad faith or evidence an intent to materially understate Fair Market Value;
(b) The date(s) on which each such act, statement, omission, or course of conduct occurred;
(c) The identity of each person with knowledge of the facts described in response to this Interrogatory, including witnesses to any conversations, meetings, or other communications, and a description of each such person's knowledge;
(d) Each document that supports or relates to MSH's bad-faith allegation, identified by date, author, recipient, subject matter, and Bates number (if produced);
(e) MSH's contention as to how OA Section 12.7 should be interpreted and applied under Florida law, including the specific contractual, statutory, or common-law standard of "bad faith" that MSH relies upon, and any case law, statute, or secondary authority MSH contends supports its interpretation;
(f) Whether MSH contends that PCG's selection of Whitfield Realty Advisors LLC and Gerald K. Whitfield, MAI, as PCG's appraiser was itself an act of bad faith, and if so, the factual basis for that contention;
(g) Whether MSH contends that any specific valuation assumption, methodology, or adjustment employed in the Whitfield Appraisal was the product of bad faith or collusion between PCG and Whitfield Realty Advisors LLC, and if so, identify each such assumption, methodology, or adjustment and the basis for MSH's contention.
INTERROGATORY NO. 3
Derivation of the $16,975,000 Bad-Faith Penalty Demand
Describe in detail the methodology, calculations, and legal basis by which MSH derived its claimed bad-faith penalty amount of $16,975,000 as set forth in the Demand, including but not limited to the following:
(a) The specific formula or calculation used by MSH to arrive at the $16,975,000 figure, identifying each variable, input, and data source used in the calculation, and setting forth the mathematical steps in sequential order;
(b) Whether MSH contends the penalty should be calculated as a percentage of the gross equity value of MSH's 35% membership interest, the net equity value of MSH's 35% membership interest, the preferred return, or some combination thereof, and if so, what percentage was applied and how it was determined;
(c) The legal or contractual authority upon which MSH relies for applying what appears to be an approximately 32% punitive adjustment — or any other percentage — rather than a penalty computed strictly as a percentage of the Fair Market Value of the redeemed interest up to the maximum of 25% as stated in OA Section 12.7. If MSH contends the $16,975,000 figure is within the 25% cap, set forth the calculation demonstrating compliance with the contractual cap;
(d) Identify any expert, advisor, consultant, accountant, or other person who participated in, contributed to, or was consulted regarding the derivation of the $16,975,000 penalty demand, and for each such person, state his or her name, professional affiliation, and the nature and extent of his or her involvement.
INTERROGATORY NO. 4
Selection and Retention of Beacon Valuation Group Inc.
Describe in detail the circumstances surrounding MSH's selection and retention of Beacon Valuation Group Inc. and Dr. Priya Ramanathan, CFA, ASA, as MSH's appraiser for purposes of the Call Option valuation process under OA Section 12.4, including but not limited to the following:
(a) The date on which MSH first contacted Beacon Valuation Group Inc. regarding a potential engagement, and the method by which initial contact was made;
(b) The names and titles of all persons involved in selecting Beacon Valuation Group Inc. on MSH's behalf, including any involvement by MSH's counsel, Hargrove, Dunlap & Castillo LLP, or any other advisor;
(c) Whether MSH considered, contacted, interviewed, or solicited proposals from any other appraisal firms, valuation consultants, or real estate advisors before selecting Beacon Valuation Group Inc., and if so, identify each such firm or individual, the date(s) of contact, the proposal or fee quote received (if any), and the specific reason(s) each firm or individual was not retained;
(d) The complete terms of the engagement between MSH and Beacon Valuation Group Inc., including: (i) the total fees charged or agreed upon; (ii) the billing structure (flat fee, hourly rate, contingency, or other arrangement); (iii) the scope of work; (iv) any limitations on methodology, assumptions, or comparable data; (v) the expected deliverables and delivery timeline; and (vi) whether any portion of Beacon's compensation is contingent upon the outcome of this arbitration or the value conclusion reached;
(e) All communications between MSH (including its members, officers, employees, agents, or representatives), its counsel (Hargrove, Dunlap & Castillo LLP, including Victoria Castillo and Ryan Matsuda), and Beacon Valuation Group Inc. or Dr. Priya Ramanathan regarding the scope, assumptions, methodology, data inputs, comparable transactions, or preliminary or final conclusions of the Beacon Appraisal, to the extent such communications are not protected by the attorney-client privilege or work-product doctrine. For any communications withheld on the basis of privilege, provide a privilege log entry as specified in the Instructions above;
(f) Whether Dr. Priya Ramanathan or Beacon Valuation Group Inc. has any prior professional or personal relationship with MSH, Nathaniel Cordero, Elena Cordero, or any member, officer, agent, or counsel of MSH, and if so, describe the nature and duration of such relationship.
INTERROGATORY NO. 5
Methodology and Assumptions of the Beacon Appraisal
Describe in detail the valuation methodology and all material assumptions underlying the Beacon Appraisal's conclusion that the Fair Market Value of 100% of PGV's assets as of December 31, 2022 was $151,500,000, including but not limited to the following:
(a) State why Beacon Valuation Group Inc. employed only the income approach (Discounted cash flow method) and did not perform, or elected not to give weight to, a sales-comparison approach or a cost approach. Identify the specific reasons given by Dr. Ramanathan for excluding or not weighting each alternative approach, and whether MSH or its counsel provided any input, instruction, or guidance regarding the choice of methodology;
(b) Set forth the factual and analytical basis for the 8.5% discount rate selected by Dr. Ramanathan, including: (i) each specific input to the build-up method, weighted average cost of capital analysis, or other discount rate derivation methodology employed; (ii) the specific risk premium, risk-free rate, equity risk premium, size premium, and property-specific risk factors used; (iii) any comparable transactions, published surveys (such as Marlowe Crane CPAs LLP Real Estate Investor Survey, CBRE Cap Rate Survey, or Thackeray Consulting Group reports), or market data relied upon in selecting the discount rate; and (iv) whether the 8.5% discount rate was adjusted at any point during the preparation of the Beacon Appraisal and, if so, the earlier rate(s) considered and the reason(s) for the change;
(c) Set forth the factual and analytical basis for the 7.75% terminal capitalization rate used in the Beacon Appraisal, including the comparable transactions, market data, published surveys, or other sources relied upon, and explain why the terminal capitalization rate differs from the going-in capitalization rate implied by the Beacon Appraisal;
(d) Set forth the revenue, expense, occupancy rate, average daily rate ("ADR"), and revenue per available room ("RevPAR") assumptions used in each year of the discounted cash flow projections, and for each assumption, explain: (i) how the projected figure compares to the Hotel's actual 2022 performance, which PCG understands to include total revenue of approximately $62,800,000, RevPAR of approximately $289, net operating income ("NOI") of approximately $18,400,000, and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $19,700,000; (ii) the growth rate(s) assumed for each line item; and (iii) the market data, competitive set analysis, or other factual basis for each projected figure;
(e) Describe the specific "below-market" franchise agreement adjustment referenced in the Beacon Appraisal, including: (i) the dollar amount of the adjustment (as a present value or other figure); (ii) the methodology used to calculate the adjustment; (iii) the "market" franchise fee rate or rates against which the Aurelian Franchise Agreement was compared; (iv) the source of the "market" rate data; (v) the remaining term of the Aurelian Franchise Agreement used in the calculation; (vi) the discount rate applied to the present value of the franchise fee savings; and (vii) the factual basis for concluding that the Aurelian Franchise Agreement's terms (5% of gross room revenue plus 2% marketing fund contribution, 20-year term expiring July 14, 2037) are "below market" for a luxury beach resort property of the Hotel's caliber;
(f) Identify all comparable hotel sale transactions, market data sources, published surveys, industry reports, STR (Penmark Enterprises) data, or other sources of information relied upon by Dr. Ramanathan in preparing the Beacon Appraisal, including the name, location, date of sale, sale price, and key operating metrics for each comparable transaction.
INTERROGATORY NO. 6
Deferred Maintenance — $8.2 Million Adjustment
Describe in detail each specific item of deferred maintenance that MSH contends PCG, as Manager of PGV, failed to fund or cause to be performed in breach of OA Section 8.3, which items Beacon Valuation Group Inc. included as a valuation adjustment in the aggregate amount of $8,200,000 in the Beacon Appraisal, including but not limited to the following:
(a) A line-item description of each individual deferred-maintenance item, including the building system, component, or area of the Hotel to which it pertains, and the estimated cost to cure for each item;
(b) The date on which each deferred-maintenance item was first identified, the person(s) who identified it, and the circumstances of identification (e.g., routine inspection, guest complaint, engineering report, insurance audit);
(c) Whether MSH raised any of these deferred-maintenance items with PCG, Dominic R. Pellegrino, Adriana Pellegrino-Voss, Marcus Thiel, or any other representative of PCG prior to the Call-Option Notice of January 9, 2023, and if so, the date and substance of each communication, the identity of each participant, and any response received from PCG;
(d) Whether any capital calls were proposed, requested, or demanded by MSH under the Operating Agreement (including under OA Section 4.2 or Section 8.3) to fund any of these deferred-maintenance items, and if so, the date, amount, and outcome of each such capital call request;
(e) Any third-party inspection reports, engineering assessments, property condition assessments, reserve studies, or other professional evaluations of the physical condition of the Hotel that support or relate to the claimed deferred-maintenance items, identified by preparer, date, and scope of work;
(f) How each individual deferred-maintenance item was quantified for purposes of the $8,200,000 aggregate adjustment, including whether the cost estimates were prepared by a licensed contractor, engineer, or other qualified professional, and if so, the identity of each such professional and the date of each estimate;
(g) Whether any of the claimed deferred-maintenance items were known to MSH at the time the Hotel was acquired in 2017 or during the $24,300,000 renovation program completed during 2017–2019, and if so, explain why such items were not addressed during the renovation.
INTERROGATORY NO. 7
MSH's Understanding and Negotiation of OA Section 12.4 (Call Option)
Describe MSH's understanding at the time of execution of the Operating Agreement on June 15, 2017, of the terms and operation of OA Section 12.4 (Call Option), including but not limited to the following:
(a) Identify each person who negotiated OA Section 12.4 on MSH's behalf, including any attorney, broker, financial advisor, or other representative, and state the identity of MSH's legal counsel at the time of negotiation and execution of the Operating Agreement;
(b) State whether MSH proposed any amendments, revisions, alternative formulations, or mark-ups to Section 12.4 at any point during the negotiation of the Operating Agreement, and if so, describe each proposed change, the date on which it was proposed, the party to whom it was communicated, and the outcome of each proposal (i.e., whether it was accepted, rejected, or modified);
(c) State MSH's understanding of the phrase "Fair Market Value" as used in Section 12.4 at the time the Operating Agreement was executed, including whether MSH understood that term to include or exclude any specific valuation methodology, any discount for minority interest or lack of marketability, any premium for control, or any particular treatment of franchise agreements, deferred maintenance, or intangible assets;
(d) State MSH's understanding of the 10% appraisal divergence threshold set forth in OA Section 12.4(c), which triggers the appointment of a third appraiser, including whether MSH understood this threshold to apply to the gross asset value, the net equity value, or some other metric, and MSH's understanding of the role and authority of the third appraiser in the valuation process;
(e) State whether any side letters, oral agreements, informal understandings, course-of-dealing agreements, or other arrangements existed between MSH and PCG regarding the operation, timing, or conditions of the Call Option outside of or supplementary to the Operating Agreement, and if so, describe each such understanding in detail, including the date, parties, and substance thereof.
INTERROGATORY NO. 8
MSH's Calculation of Demanded Buyout Price of $70,000,000
Set forth in detail the complete calculation by which MSH derived its demanded buyout price of $70,000,000 for MSH's 35% membership interest in PGV, as stated in the Demand, including but not limited to each of the following components:
(a) The gross asset value used in MSH's calculation (stated as $151,500,000 per the Beacon Appraisal — confirm whether this is the figure MSH relies upon and whether MSH contends any adjustments should be made to this figure);
(b) The outstanding indebtedness deducted from the gross asset value to arrive at the net equity value ($48,600,000 as of December 31, 2022, representing the outstanding principal balance on PGV's loan from Gulf Atlantic National Bank, Loan No. CRE-2017-06284 — confirm whether MSH agrees to this figure and, if not, state MSH's alternative figure with the basis therefor);
(c) The resulting net equity value (i.e., gross asset value less outstanding indebtedness), which PCG calculates as $102,900,000 based on the Beacon Appraisal's $151,500,000 gross asset value less $48,600,000 in debt;
(d) MSH's 35% share of the net equity value ($36,015,000 — confirm whether MSH agrees to this calculation and, if not, state MSH's alternative calculation);
(e) The accrued preferred return added to MSH's equity share ($17,010,000 — state whether MSH agrees to this figure and, if not, describe MSH's alternative calculation in detail, cross-referencing MSH's response to Interrogatory No. 9);
(f) The bad-faith penalty amount ($16,975,000 — cross-reference MSH's response to Interrogatory No. 3 and describe how this amount is added to the buyout price);
(g) Any other adjustments, credits, debits, reimbursements, or amounts included in or contributing to MSH's demand of $70,000,000, with a specific description and dollar amount for each such item;
(h) A reconciliation demonstrating how the sum of the above components equals $70,000,000.
INTERROGATORY NO. 9
MSH's Position on Accrued Preferred Return
State whether MSH agrees that the accrued but unpaid preferred return owed to MSH under the Operating Agreement as of December 31, 2022 (the Valuation Date) is $17,010,000. If MSH contends that a different amount is owed, describe in detail:
(a) MSH's calculation of the accrued preferred return, including the compounding methodology applied (simple interest, annual compounding, quarterly compounding, or other), the applicable preferred return rate as stated in the Operating Agreement, and the date from which the preferred return began to accrue;
(b) MSH's total capital contributions to PGV, including: (i) the initial capital contribution of $10,000,000 at acquisition, as required by OA Section 4.1; (ii) the renovation capital contribution of $8,505,000, as required for MSH's 35% share of the $24,300,000 renovation program; and (iii) any additional capital contributions made by MSH — confirm whether MSH agrees that its total capital contributions were $18,505,000, and if not, state MSH's alternative figure with the factual basis therefor;
(c) All cash distributions received by MSH from PGV during the period from June 15, 2017 through December 31, 2022, specifying the date and amount of each distribution, and state MSH's position as to whether any or all of such distributions should or should not be applied to reduce the accrued preferred return obligation pursuant to OA Section 5.2 (or any other provision of the Operating Agreement), with the legal and contractual basis for MSH's position;
(d) Identify any accountant, financial advisor, tax advisor, or other person who prepared, reviewed, or assisted in MSH's calculation of the accrued preferred return, and for each such person, state his or her name, professional affiliation, and the nature and extent of his or her involvement.
INTERROGATORY NO. 10
MSH's Financial Condition and Interest in the Joint Venture
Describe MSH's current financial condition and any financial or business circumstances that may bear on MSH's interest in the outcome of this dispute or that may be relevant to the claims and defenses asserted in this arbitration, including but not limited to the following:
(a) State whether MSH or either of its members (Nathaniel "Nate" Cordero or Elena Cordero) has any outstanding debt obligations, loans, judgments, liens, pledges, security interests, or encumbrances of any kind that attach to, or are secured by, MSH's 35% membership interest in PGV or any direct or indirect interest therein, and if so, identify each such obligation, the creditor or secured party, the principal amount outstanding, and the date of origination;
(b) State whether MSH or any of its members, officers, or agents have received, solicited, entertained, or made any offers, indications of interest, letters of intent, or proposals from or to any third party regarding the purchase, sale, transfer, pledge, hypothecation, or other disposition of all or any portion of MSH's 35% membership interest in PGV, or regarding the sale or recapitalization of the Hotel or PGV's assets, at any time since January 1, 2022, and if so, identify the third party, the date of each such communication, the material terms of each offer or proposal, and the current status thereof;
(c) State whether MSH or any of its members has any current liquidity needs, pending financial obligations, or other financial circumstances that would be materially affected by the timing or amount of a buyout payment from PCG, including but not limited to pending litigation, tax obligations, margin calls, debt service requirements, or capital commitments.
INTERROGATORY NO. 11
Communications with PCG Regarding Call Option and Valuation
Identify and describe every communication between MSH (or its members, officers, managers, employees, agents, or counsel) and PCG (or its members, officers, managers, employees, agents, or counsel) regarding the following subjects, during the time periods specified:
(a) The exercise or potential exercise of the Call Option under OA Section 12.4, from June 15, 2022 (the date on which the Call Option first became exercisable, being the fifth anniversary of the Operating Agreement) through March 20, 2023 (the date on which MSH filed its Demand for Arbitration), including any discussions, negotiations, or exchanges of correspondence regarding the timing, terms, or conditions of a potential call-option exercise, and any expressions of intent by PCG to exercise the Call Option;
(b) The Whitfield Appraisal, including its methodology, assumptions, comparable transactions, adjustments, or conclusions, and any objections, comments, questions, or critiques raised by MSH or its counsel regarding the Whitfield Appraisal;
(c) The tender of $41,300,000 made by PCG on March 1, 2023, pursuant to OA Section 12.4(b), as payment for MSH's 35% membership interest based on the Whitfield Appraisal's Fair Market Value conclusion of $118,000,000, and MSH's rejection of such tender on March 10, 2023, including the grounds for MSH's rejection and any counterproposal or counteroffer made by MSH;
(d) Any prior discussions, whether formal or informal, between MSH and PCG (or their respective representatives) regarding the potential buyout of MSH's membership interest, whether pursuant to the Call Option or otherwise, at any time from June 15, 2017 through the present, including discussions regarding potential sale of the Hotel, recapitalization of PGV, or refinancing of PGV's indebtedness.
For each communication identified in response to this Interrogatory, state the date, the participants (including all persons present or copied), the medium of communication (e.g., in-person, telephone, email, text message), and a description of the substance of the communication.
INTERROGATORY NO. 12
MSH's Involvement in Hotel Operations and Capital Expenditure Decisions
Describe MSH's involvement in, knowledge of, or participation in the operations and capital expenditure decisions of PGV and The Palmetto Grand Resort & Spa during the period from August 1, 2017 (the approximate date operations commenced under PGV's ownership) through the present date, including but not limited to the following:
(a) MSH's role, if any, in reviewing, approving, commenting upon, or objecting to annual operating budgets and capital expenditure budgets prepared by PCG in its capacity as Manager of PGV, including for each fiscal year from 2017 through 2023: (i) the date on which the proposed budget was received by MSH; (ii) whether MSH provided any comments, objections, or proposed modifications; (iii) whether MSH formally approved the budget; and (iv) the identity of the person(s) at MSH who reviewed the budget;
(b) Any exercise by MSH of its consent rights or approval rights under the Operating Agreement with respect to: (i) capital calls in excess of $2,000,000; (ii) dispositions of all or any material portion of PGV's assets; (iii) refinancings or modifications of PGV's indebtedness; (iv) the incurrence of new indebtedness; or (v) any other matter requiring MSH's consent under the OA. For each such exercise of consent rights, state the date, the nature of the matter requiring consent, MSH's response, and the ultimate outcome;
(c) Whether MSH ever proposed, requested, or demanded that PCG (as Manager of PGV) undertake specific capital improvements, maintenance expenditures, or repairs to the Hotel, and if so, for each such proposal, request, or demand, state the date, the substance of the proposal or request, the identity of the person(s) who communicated it, the person(s) at PCG to whom it was communicated, and the outcome or response;
(d) MSH's knowledge of and involvement in the $24,300,000 renovation program completed during the period from 2017 through 2019, including: (i) MSH's role, if any, in approving the scope and budget of the renovation; (ii) MSH's capital contribution of $8,505,000 toward the renovation (representing MSH's 35% share); (iii) whether MSH reviewed or approved the selection of contractors, architects, or designers; and (iv) whether MSH raised any concerns regarding the quality, scope, or cost of the renovation work.
INTERROGATORY NO. 13
MSH's Knowledge of Hotel Performance
Describe MSH's knowledge of the financial and operational performance of The Palmetto Grand Resort & Spa during the period from January 1, 2020 through December 31, 2022, including but not limited to the following:
(a) State whether MSH received periodic financial statements, operating reports, monthly revenue reports, quarterly performance summaries, annual audited financial statements, K-1 tax schedules, or any other financial information from PCG, PGV, or PGV's accountants (Grantham, Pryce & Associates CPAs) during this period, and if so, identify each type of report received, the frequency of receipt, and the date of the most recent report received prior to the Call-Option Notice of January 9, 2023;
(b) Describe MSH's knowledge of the Hotel's 2022 financial performance, including whether MSH knew or understood that the Hotel's total revenue was approximately $62,800,000, NOI was approximately $18,400,000, EBITDA was approximately $19,700,000, and RevPAR was approximately $289 during fiscal year 2022. If MSH contends that different figures are correct, state MSH's alternative figures and the basis therefor;
(c) State whether MSH or any of its members, officers, or agents ever raised concerns about the Hotel's financial performance, management, marketing, staffing, competitive positioning, or operational efficiency with PCG, Dominic R. Pellegrino, Adriana Pellegrino-Voss, Marcus Thiel, or any other representative of PCG or PGV, at any time during the period from January 1, 2020 through the present, and if so, state the date and substance of each concern raised, the person who raised it, the person to whom it was communicated, and any response received;
(d) State whether MSH performed, commissioned, or obtained any independent analysis, valuation, appraisal, market study, broker opinion of value, or other assessment regarding the Hotel or PGV's assets at any time prior to the Call-Option Notice of January 9, 2023, and if so, identify each such analysis, the preparer, the date, and the conclusion or value range.
INTERROGATORY NO. 14
MSH's Contention Regarding the Aurelian Franchise Agreement
Describe in detail MSH's contention, as reflected in the Beacon Appraisal and asserted in this arbitration, that the Aurelian Hotels & Resorts Inc. franchise agreement is "below market," including but not limited to the following:
(a) Identify the specific terms of the Aurelian Franchise Agreement that MSH contends are below market, including but not limited to: (i) the franchise fee of 5% of gross room revenue; (ii) the 2% marketing fund contribution; (iii) the 20-year term expiring July 14, 2037; and (iv) any other terms that MSH contends are more favorable than current market terms;
(b) Identify all comparable franchise agreements, franchise disclosure documents, industry publications, broker surveys, or other market data that MSH or Beacon Valuation Group Inc. relies upon to support the contention that the Aurelian Franchise Agreement is below market, and for each comparable, state the franchisor, the property type and class, the franchise fee rate, the marketing contribution rate, the term, and the date of execution;
(c) State the dollar amount of the "below-market" franchise agreement adjustment included in the Beacon Appraisal, including whether this adjustment is expressed as a present value of projected franchise fee savings over the remaining term of the Aurelian Franchise Agreement, and if so, the discount rate applied;
(d) State whether MSH or any of its members, officers, or agents was involved in negotiating the Aurelian Franchise Agreement in July 2017, and if so, describe in detail MSH's role in the negotiation, including: (i) the identity of each person at MSH who participated; (ii) whether MSH reviewed, commented upon, or approved the franchise terms prior to execution; and (iii) whether MSH considered the franchise fee and marketing contribution to be below market at the time of execution.
INTERROGATORY NO. 15
Third-Party Appraisals and Market Information
Identify every appraisal, broker opinion of value, market analysis, competitive market study, investment memorandum, offering memorandum, or other valuation or assessment of the Hotel or PGV's assets that MSH has obtained, commissioned, received, reviewed, or is otherwise aware of at any time, other than the Beacon Appraisal, including but not limited to the following information for each such valuation or analysis:
(a) The identity of the preparer (including the firm name and the name of the individual appraiser, analyst, or broker), the date of the valuation or analysis, and the effective date (if different from the date of the report);
(b) The concluded value, value range, or pricing indication;
(c) The purpose for which the valuation or analysis was obtained (e.g., financing, insurance, tax planning, litigation, internal decision-making, potential sale);
(d) Whether the valuation or analysis was shared with PCG or any other party, and if so, identify the recipient(s) and the date of transmission.
INTERROGATORY NO. 16
Expert Witnesses
Identify each expert witness that MSH intends to call, designate, or rely upon in connection with the hearing in this arbitration, and for each such expert provide the following:
(a) The expert's full name, professional address, telephone number, email address, professional qualifications (including degrees, certifications, licenses, and professional memberships), and area(s) of expertise;
(b) A summary of each opinion or set of opinions the expert is expected to offer in this arbitration, including the specific issues to which each opinion relates;
(c) The facts, data, documents, assumptions, or other information upon which each opinion is based, including whether the expert relied upon the Beacon Appraisal, any financial data provided by MSH or PGV, or any independent research;
(d) A list of all cases, arbitrations, mediations, or other proceedings in which the expert has provided testimony (whether by deposition, at hearing, at trial, or by affidavit or declaration) within the past five (5) years, including the case name, tribunal, jurisdiction, and a brief description of the subject matter;
(e) The total compensation paid or to be paid to the expert for his or her services in connection with this arbitration, including the hourly rate or flat fee, any retainer, and any amounts already paid as of the date of MSH's response.
INTERROGATORY NO. 17
Damages and Relief Sought
Describe in detail all damages, monetary relief, equitable relief, or other remedies that MSH seeks in this arbitration, itemized by category, including but not limited to the following:
(a) The total amount of the demanded buyout price ($70,000,000) and its constituent components, as set forth in MSH's response to Interrogatory No. 8, including MSH's 35% equity share, accrued preferred return, bad-faith penalty, and any other components;
(b) Pre-judgment or pre-award interest claimed by MSH on any component of the demanded buyout price, including: (i) the rate of interest claimed; (ii) the legal or contractual basis for the claimed rate; (iii) the date from which interest is claimed to begin accruing; (iv) the calculation of accrued interest through the date of MSH's response; and (v) whether MSH claims simple or compound interest;
(c) Attorneys' fees and costs incurred by MSH to date in connection with this arbitration, including: (i) the total amount of legal fees paid or owed to Hargrove, Dunlap & Castillo LLP; (ii) the total amount of costs and expenses incurred, including JAMS filing fees, arbitrator fees, expert fees, and other disbursements; (iii) the contractual or legal basis upon which MSH claims entitlement to recover attorneys' fees and costs (including the specific provision of the Operating Agreement or applicable statute relied upon); and (iv) whether MSH intends to seek additional attorneys' fees and costs through the conclusion of this arbitration;
(d) Any other damages, penalties, or equitable relief sought by MSH, including but not limited to: (i) the bad-faith penalty under OA Section 12.7 and its calculation (cross-reference to Interrogatory No. 3); (ii) any claim for breach of OA Section 8.3 relating to deferred maintenance; (iii) any claim for declaratory relief regarding the interpretation of the Operating Agreement; (iv) any claim for specific performance; (v) any claim for punitive or exemplary damages; and (vi) any other form of relief sought, however described.
INTERROGATORY NO. 18
Outstanding Loan and Debt Acknowledgment
State whether MSH agrees with the following statements regarding PGV's outstanding indebtedness as of December 31, 2022 (the Valuation Date):
(a) The outstanding principal balance on PGV's senior secured loan from Gulf Atlantic National Bank (Loan No. CRE-2017-06284) was $48,600,000 as of December 31, 2022;
(b) The loan bears interest at a floating rate of the Secured Overnight Financing Rate ("SOFR") plus 2.25% (225 basis points) per annum;
(c) The loan has a stated maturity date of August 1, 2027;
(d) The original principal amount of the loan was $61,250,000, representing approximately 70% loan-to-value based on the $87,500,000 acquisition price of the Hotel in June 2017;
(e) If MSH disputes any of the foregoing figures, terms, or characterizations, state with specificity MSH's alternative figures or characterization, the factual basis for MSH's position, and identify any documents that support MSH's alternative position, including any loan agreements, amendments, modification agreements, payoff statements, or lender correspondence.