1027-00003 · Calderwood & Harkness LLP · Arbitration/Motions

opposition-to-motion-to-compel.docx DOCUMENT Litigation

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JAMS ARBITRATION Jacksonville, Florida Resolution Center 1 Independent Drive, Suite 1600, Jacksonville, FL 32202

JAMS Ref. No. 1440032871

Before Hon. Margaret Liu Chen (Ret.), Arbitrator

MERIDIAN SHORES HOSPITALITY LLC,

Claimant,

PELLEGRINO CAPITAL GROUP LLC,

Respondent.

RESPONDENT PELLEGRINO CAPITAL GROUP LLC'S OPPOSITION TO CLAIMANT'S MOTION TO COMPEL PRODUCTION OF DOCUMENTS

November 17, 2023

Respondent Pellegrino Capital Group LLC ("PCG" or "Respondent"), by and through its undersigned counsel, Calderwood & Harkness LLP, respectfully submits this Opposition to the Motion to Compel Production of Documents filed by Claimant Meridian Shores Hospitality LLC ("MSH" or "Claimant") on November 6, 2023, and states as follows:

I. PRELIMINARY STATEMENT

PCG respectfully opposes the motion to compel filed by MSH on November 6, 2023, seeking production of PCG's internal investment-committee memoranda and related deliberative documents (collectively, the "IC Memoranda"). MSH's motion targets approximately fourteen (14) categories of internal documents reflecting PCG's privileged communications with legal counsel and confidential business deliberations regarding the valuation of The Palmetto Grand Resort & Spa, located at 650 Mandalay Avenue, Clearwater Beach, Florida 33767 (the "Property"), and the exercise of the call option under Section 12.4 of the Amended and Restated Operating Agreement of Palmetto Grand Ventures LLC, dated June 15, 2017 (the "Operating Agreement" or "OA").

The IC Memoranda are squarely protected by the attorney-client privilege and the work-product doctrine. MSH has failed to establish any cognizable legal basis for overriding these protections. Instead, MSH advances a sweeping theory that the mere assertion of "bad faith" under OA Section 12.7 entitles it to carte blanche access to PCG's most sensitive privileged communications. This theory finds no support in Florida law, the JAMS Comprehensive Arbitration Rules, or established arbitral practice, and it should be rejected.

The motion is particularly inappropriate given the extraordinary scope of the discovery that PCG has already provided. PCG produced in excess of 42,000 pages of responsive documents by the August 22, 2023 production deadline established by the Arbitrator at the May 15, 2023 preliminary conference. That production included, without limitation, the full and complete appraisal report prepared by Whitfield Realty Advisors LLC ("Whitfield"), concluding a Fair Market Value ("FMV") of $118.0 million for one hundred percent (100%) of the joint venture assets as of December 31, 2022; all financial statements of Palmetto Grand Ventures LLC ("PGV") for fiscal years 2017 through 2022; the complete Operating Agreement together with all amendments and exhibits; all capital account records reflecting contributions and distributions; and all non-privileged communications with third parties, including Aurelian Hotels & Resorts Inc. (the franchisor) and Gulf Atlantic National Bank (the senior lender). MSH has received all of this material.

In addition, MSH has obtained extensive testimony through discovery. MSH conducted the expert deposition of Gerald K. Whitfield, MAI (the appraiser retained by PCG) on September 18, 2023, during which Mr. Whitfield was examined for more than seven hours regarding every material aspect of his appraisal methodology, comparable selection, cap-rate analysis, and discount-rate assumptions. MSH also deposed PCG's Managing Member, Dominic R. Pellegrino, and its Director of Asset Management, Nathaniel Cordero, on October 10, 2023. Through these depositions and the documentary record, MSH has had—and continues to have—ample opportunity to develop its bad-faith theory without invading PCG's privileged deliberative process.

At its core, MSH's motion is a transparent attempt to penetrate PCG's internal legal and business deliberations in order to bolster what remains an unsubstantiated claim of "bad faith" under OA Section 12.7. The motion should be denied in its entirety, or, in the alternative, the Arbitrator should conduct an in camera review of the disputed documents to confirm that they are protected.

II. STATEMENT OF RELEVANT FACTS

A. Background of the Joint Venture and Call-Option Exercise

Palmetto Grand Ventures LLC ("PGV") was organized as a Florida limited liability company on June 15, 2017, under Florida Filing No. L17000124583. PGV was formed for the purpose of acquiring, renovating, and operating The Palmetto Grand Resort & Spa, a full-service luxury resort property situated on approximately 8.7 acres of beachfront land on Clearwater Beach, Florida. The resort comprises 347 guest rooms, three full-service restaurants, a 22,000-square-foot spa and wellness center, two outdoor pools, a private beach club, and approximately 28,000 square feet of meeting and event space.

The Operating Agreement executed on June 15, 2017, established the following ownership and governance structure: PCG holds a sixty-five percent (65%) membership interest in PGV and serves as the sole Manager, responsible for the day-to-day operations, capital planning, and strategic management of the Property. MSH holds a thirty-five percent (35%) membership interest in PGV as a passive member with limited consent rights over certain "Major Decisions" as defined in OA Section 7.2, including the incurrence of debt in excess of $5.0 million, the sale of the Property, and amendments to the Operating Agreement.

PGV acquired the Property on August 1, 2017, for a purchase price of $87.5 million. The acquisition was financed through a $61.25 million senior loan from Gulf Atlantic National Bank (Loan No. CRE-2017-06284), representing a loan-to-value ratio of approximately 70%, together with equity contributions from the Members. Pursuant to OA Section 4.1, PCG contributed $18,562,500 in initial capital and MSH contributed $10,000,000 in initial capital, consistent with their respective membership percentages subject to the negotiated allocation set forth in the capital contribution schedule attached to the Operating Agreement as Exhibit B.

Following the acquisition, PGV undertook a comprehensive renovation and repositioning of the Property during the period from 2017 through 2019, at a total cost of approximately $24.3 million. Capital contributions for the renovation were made by the Members in accordance with the capital call provisions of OA Section 4.3: PCG contributed $15,795,000 and MSH contributed $8,505,000 toward the renovation program. The renovation included a complete remodel of all 347 guest rooms, substantial upgrades to the food and beverage outlets, the addition of the spa and wellness center, enhancements to the meeting and event space, and improvements to the Property's exterior, landscaping, and pool areas.

Following the renovation, the Property achieved strong operating performance. For fiscal year 2022—the most recent full year prior to the call-option exercise—the Property generated total revenue of approximately $62.8 million, revenue per available room ("RevPAR") of $289, net operating income ("NOI") of approximately $18.4 million, and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $19.7 million. These figures reflected the Property's positioning as a premier luxury resort in the competitive Clearwater Beach/Tampa Bay market.

Section 12.4 of the Operating Agreement grants PCG, as Manager, the right to purchase MSH's entire membership interest in PGV at "Fair Market Value" upon and after the fifth anniversary of the formation date—i.e., on or after June 15, 2022. As specified in OA Section 12.4(a), the "Fair Market Value" of the membership interest to be redeemed is to be determined by an independent MAI-certified appraiser selected by the Manager and engaged at the Manager's expense. OA Section 12.4(b) further provides that the appraisal shall determine the value of 100% of PGV's assets on a fee-simple, unencumbered basis, with the redemption price for MSH's interest to be calculated by deducting outstanding indebtedness from the aggregate asset value, applying MSH's membership percentage, and adding any accrued but unpaid preferred returns.

PCG delivered its written notice of exercise of the call option (the "Exercise Notice") to MSH on January 9, 2023, in accordance with the notice provisions of OA Section 15.1. The Exercise Notice stated that PCG was exercising its rights under OA Section 12.4 and that an MAI-certified appraisal would be forthcoming.

Gerald K. Whitfield, MAI, of Whitfield Realty Advisors LLC, completed his appraisal of the Property on February 10, 2023. Mr. Whitfield's appraisal, which employed income capitalization, discounted cash flow, and sales comparison approaches, concluded that the Fair Market Value of 100% of PGV's assets was $118.0 million as of December 31, 2022.

Based on the Whitfield appraisal, PCG calculated the redemption price for MSH's 35% membership interest as follows:

PCG tendered payment in the amount of $41,300,000 to MSH on March 1, 2023, together with the complete Whitfield appraisal and a detailed calculation of the redemption price. MSH rejected the tender on March 10, 2023, asserting that the Whitfield appraisal materially understated the Property's value and that the call-option exercise was conducted in bad faith.

B. The Arbitration Proceeding

On March 20, 2023, MSH filed its Demand for Arbitration with JAMS, asserting two principal claims: (1) that PCG exercised the call option in "bad faith" and with the "intent to materially understate Fair Market Value" within the meaning of OA Section 12.7, entitling MSH to a penalty of up to 25% of the determined FMV of the redeemed interest; and (2) that PCG breached its obligations under OA Section 8.3 by deferring approximately $8.2 million in necessary maintenance and capital expenditures in the period leading up to the appraisal in order to suppress the Property's appraised value.

PCG filed its Response and Counterclaim on April 5, 2023. In its Response, PCG denied all allegations of bad faith and breach, asserting that the call option was exercised in strict compliance with the Operating Agreement, that the Whitfield appraisal was conducted by a fully qualified, independent MAI-certified appraiser utilizing standard and accepted valuation methodologies, and that PCG maintained the Property in accordance with its obligations under OA Section 8.3. In its Counterclaim, PCG seeks a declaration that the redemption price of $41,300,000 represents the correct Fair Market Value of MSH's membership interest.

The Honorable Margaret Liu Chen (Ret.) was appointed as the sole Arbitrator on April 28, 2023, following the parties' agreement on her selection in accordance with the JAMS Comprehensive Arbitration Rules and OA Section 15.2. Judge Chen served for eighteen years on the Florida Fourth District Court of Appeal and brings extensive experience in complex commercial disputes, including real estate joint venture and valuation matters.

A preliminary conference was held on May 15, 2023, at which the Arbitrator established a discovery schedule, set document production deadlines, and addressed the scope and timing of expert and party depositions. The Arbitrator directed the parties to complete initial document production by August 22, 2023, and set a final discovery cutoff consistent with a final hearing anticipated for early 2024.

MSH retained Beacon Valuation Group Inc. to provide an independent appraisal of the Property. Dr. Priya Ramanathan, CFA, ASA, a principal of Beacon Valuation Group Inc. with extensive experience in hospitality real estate valuation, completed her appraisal on April 14, 2023, concluding that the Fair Market Value of 100% of PGV's assets was $151.5 million as of December 31, 2022. The Beacon appraisal diverged from the Whitfield appraisal by approximately 28.4%—$33.5 million.

This divergence exceeded the 10% threshold established in OA Section 12.4(c), which provides that if the Claimant obtains a competing appraisal and the two appraisals diverge by more than 10%, the parties shall jointly retain a neutral third appraiser whose determination shall be final and binding. Accordingly, on June 1, 2023, the parties jointly retained Linden Park Advisory LLC to serve as the neutral appraiser. Thomas Carraway, MAI, FRICS, the principal of Linden Park Advisory LLC, was appointed for this purpose. On July 14, 2023, Linden Park delivered a preliminary indication of value, estimating the FMV of 100% of PGV's assets within a range of $130.0 million to $138.0 million. The final determination by Linden Park remains pending.

Expert depositions were conducted on September 18, 2023. MSH's counsel conducted a full-day deposition of Gerald K. Whitfield, MAI, during which Mr. Whitfield was questioned extensively regarding his selection of comparable transactions, his capitalization-rate analysis (9.5% cap rate as compared to the 8.5% cap rate employed in the Beacon appraisal), his discount-rate assumptions (10.75% as compared to Beacon's 7.75% terminal capitalization rate), his treatment of deferred maintenance reserves, and his overall methodology. PCG's counsel conducted a deposition of Dr. Priya Ramanathan, CFA, ASA, of equivalent scope.

Party depositions of Dominic R. Pellegrino, the Managing Member of PCG, and Nathaniel Cordero, PCG's Director of Asset Management responsible for oversight of the Property, were conducted on October 10, 2023. During Mr. Pellegrino's deposition, MSH's counsel questioned him regarding his decision to exercise the call option, his selection of Whitfield Realty Advisors LLC as the appraiser, the information provided to Mr. Whitfield, and the Property's capital expenditure and maintenance history. Mr. Cordero was examined regarding the Property's physical condition, capital expenditure program, deferred maintenance log, and the scope of renovations and repairs undertaken during 2021 and 2022.

C. PCG's Document Production and MSH's Motion to Compel

PCG completed its document production by the August 22, 2023 deadline. In total, PCG produced in excess of 42,000 pages of responsive, non-privileged documents. The production encompassed the following categories of material:

• The complete Whitfield Realty Advisors LLC appraisal report, together with all supporting comparable sales data, market studies, rent rolls, operating projections, and correspondence between PCG and Whitfield;

• PGV's audited and unaudited financial statements for fiscal years 2017 through 2022, including balance sheets, income statements, statements of cash flows, and accompanying notes;

• All capital account ledgers reflecting Member contributions, distributions, allocations of profit and loss, and accrued preferred returns;

• Correspondence and communications with Whitfield Realty Advisors LLC relating to the engagement, scope of work, property inspections, data requests, and delivery of the appraisal;

• Correspondence and communications with Gulf Atlantic National Bank relating to the senior loan, including loan agreements, amendments, draw requests, financial covenants, compliance certificates, and periodic lender reports;

• Correspondence and communications with Aurelian Hotels & Resorts Inc. relating to the franchise agreement, brand standards compliance, property improvement plans, and performance benchmarking;

• Property management reports, including monthly and annual operating statements, occupancy reports, guest satisfaction surveys, and competitive market analyses;

• Renovation budgets, contracts with general contractors and subcontractors, change orders, payment applications, invoices, and certificates of substantial completion for the 2017–2019 renovation program;

• Federal and state tax returns for PGV for fiscal years 2017 through 2022, prepared by Grantham, Pryce & Associates CPAs (Howard Grantham, CPA), together with supporting workpapers and K-1 schedules; and

• All non-privileged communications between PCG and MSH, including correspondence, meeting minutes, and member notices.

Notwithstanding this comprehensive production, PCG withheld a total of thirty-seven (37) documents in their entirety and partially redacted twelve (12) additional documents on the grounds of attorney-client privilege, work-product protection, or both. PCG served a detailed Supplemental Production Log and Privilege Log identifying each withheld or redacted document by Bates number range, date, author, recipient(s), general subject matter, and the specific privilege or protection asserted. The Privilege Log was served in connection with the production and supplemented thereafter in accordance with the Arbitrator's directives.

On November 6, 2023, MSH, through its counsel Victoria Castillo and Ryan Matsuda of Hargrove, Dunlap & Castillo LLP, filed the instant Motion to Compel Production of Documents. MSH's motion seeks an order compelling PCG to produce all thirty-seven (37) withheld IC Memoranda and all unredacted versions of the twelve (12) partially redacted documents. MSH contends that the IC Memoranda are relevant to its bad-faith inquiry under OA Section 12.7 and that PCG has waived the attorney-client privilege by placing its "state of mind" at issue through its denial of bad faith. MSH further contends that the work-product doctrine does not apply because, MSH asserts, the IC Memoranda were prepared in the ordinary course of business rather than in anticipation of litigation.

PCG respectfully submits that MSH's arguments are without merit and that the motion should be denied for the reasons set forth below.

III. LEGAL STANDARD

Under the JAMS Comprehensive Arbitration Rules, Rule 17(a), the Arbitrator has broad discretion to manage discovery in a manner consistent with the efficient resolution of the dispute. Rule 17(a) further provides that the Arbitrator may reference the Federal Rules of Civil Procedure as guidelines in resolving discovery disputes, while recognizing that arbitration proceedings are not bound by the full scope of judicial discovery.

It is well established that the party resisting discovery bears the initial burden of establishing that a claimed privilege or protection applies to the withheld materials. See, e.g., Southern Bell Tel. & Tel. Co. v. Deason, 632 So. 2d 1377, 1383 (Fla. 1994). Once the resisting party has made a prima facie showing that the privilege applies, however, the burden shifts to the requesting party to demonstrate that a recognized exception overrides the privilege or that the requirements for piercing the work-product doctrine have been satisfied. Id.

The attorney-client privilege under Florida law is codified at Section 90.502, Florida Statutes. Section 90.502(1)(c) defines a "confidential communication" as one "not intended to be disclosed to third persons other than" those to whom disclosure is made in furtherance of the rendition of legal services or those reasonably necessary for the transmission of the communication. Section 90.502(2) provides that a "client has a privilege to refuse to disclose, and to prevent any other person from disclosing, the contents of confidential communications when such other person learned of the communications because they were made in the rendition of legal services to the client." The privilege applies regardless of whether the communication was made before or after the commencement of litigation, provided the communication was made for the purpose of rendering or obtaining legal services. See Ashbury Partners LLC v. Indigo Sys. Corp., No. 07-1589, 2009 WL 10671040, at *4 (M.D. Fla. Feb. 13, 2009).

The work-product doctrine under Florida law is codified at Florida Rule of Civil Procedure 1.280(b)(4), which provides protection for "documents and tangible things . . . prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative." The doctrine encompasses two tiers of protection. Fact work product—consisting of factual compilations and investigative materials—may be discovered upon a showing of substantial need and an inability to obtain the substantial equivalent without undue hardship. See Fla. R. Civ. P. 1.280(b)(4)(A). Opinion work product—consisting of mental impressions, conclusions, opinions, and legal theories—is entitled to near-absolute protection and is virtually immune from discovery. See Ryder Truck Rental, Inc. v. Central Packing Co., 341 So. 2d 802, 804 (Fla. 3d DCA 1977); see also Hickman v. Taylor, 329 U.S. 495, 511 (1947).

Both the attorney-client privilege and the work-product doctrine may be asserted in JAMS arbitration proceedings. The JAMS Comprehensive Arbitration Rules expressly recognize the applicability of privilege claims in the context of arbitral discovery, and the parties' agreement in OA Section 15.2 specifies that "all disputes arising out of or relating to this Agreement shall be governed by the substantive law of the State of Florida, including its rules of privilege and discovery." Accordingly, both protections are fully applicable in this proceeding.

IV. ARGUMENT

A. The Internal Investment-Committee Memoranda Are Protected by the Attorney-Client Privilege

1. The IC Memoranda Reflect Privileged Legal Advice. The IC Memoranda at issue in MSH's motion were prepared during the period from approximately October 2022 through January 2023—the critical period during which PCG was evaluating whether and how to exercise the call option under OA Section 12.4. During this period, PCG's principals, including Dominic R. Pellegrino (Managing Member), Adriana Pellegrino-Voss (Senior Vice President of Investments), and Marcus Thiel (Chief Financial Officer), engaged in a series of confidential deliberations and consultations with legal counsel regarding the call-option mechanics, the requirements for determining "Fair Market Value" under the Operating Agreement, and the legal risks and obligations attendant to the exercise of the call option.

Calderwood & Harkness LLP was formally engaged by PCG on March 22, 2023 (Matter No. 1027-00003), to represent PCG in connection with the dispute that arose following MSH's rejection of the tendered redemption price. However, prior to the formal engagement of Calderwood & Harkness LLP, PCG received legal counsel from its then-outside counsel regarding the call-option mechanics, the interpretation of the "Fair Market Value" standard under OA Section 12.4, the selection and engagement of an independent MAI-certified appraiser, and the procedural requirements for delivering the Exercise Notice and tendering the redemption price. That prior counsel-client relationship is fully protected under Section 90.502, Florida Statutes, and the documents reflecting those consultations are no less privileged because a different firm now represents PCG in this arbitration.

Several of the IC Memoranda contain or directly reflect confidential legal advice received by PCG's principals regarding the legal requirements and risks associated with the call-option exercise. Specifically, these documents include:

• Memoranda prepared by or at the direction of PCG's legal advisors analyzing the interpretation of "Fair Market Value" under OA Section 12.4 and the range of permissible valuation methodologies;

• Internal communications among PCG's investment committee members discussing legal advice received regarding the standard of appraiser independence required under the Operating Agreement;

• Draft communications and strategy memoranda reflecting legal counsel's assessment of potential challenges by MSH and the legal framework governing the bad-faith standard under OA Section 12.7; and

• Confidential deliberations regarding the selection of Whitfield Realty Advisors LLC as the appraiser, including legal counsel's advice regarding appraiser qualifications, conflicts of interest, and the scope of the engagement letter.

Each of these communications satisfies all four elements of the attorney-client privilege under Florida law: (1) the communications were made between PCG (the client) and its legal advisors (the lawyers); (2) the communications were made in confidence; (3) the communications were made for the purpose of rendering or obtaining legal services and advice; and (4) the privilege has not been waived. See § 90.502, Fla. Stat.; Southern Bell, 632 So. 2d at 1383.

The fact that the IC Memoranda also contain business analysis and financial considerations does not strip them of privilege protection. It is well established under Florida law that where a communication involves both legal and business considerations, the communication is privileged so long as "the predominant purpose of the communication is to render or obtain legal advice." See Raytheon, 2009 WL 10671040, at 5; see also In re Grand Jury Subpoena*, 599 F.2d 504, 510 (2d Cir. 1979) (applying the "primary purpose" test). Here, the IC Memoranda were generated in the context of a decision that was fundamentally shaped by legal requirements—the exercise of a contractual option governed by specific legal standards for valuation, appraiser selection, and good-faith conduct. The legal advice interwoven throughout these documents was their primary purpose, and they are protected accordingly.

2. MSH Has Identified No Applicable Exception to the Attorney-Client Privilege. MSH's primary argument for overcoming the attorney-client privilege is that PCG placed its "state of mind" at issue by denying bad faith, thereby effecting an implied waiver of the privilege. This argument is without merit under Florida law and should be rejected.

The so-called "at issue" or "implied" waiver doctrine provides that a party may waive the attorney-client privilege when it affirmatively places privileged communications at issue in the litigation—that is, when the party injects the privileged communication itself as an element of a claim or affirmative defense. See Bray & Gillespie Mgmt. LLC v. Lexington Ins. Co., No. 6:07-cv-222-Orl-35KRS, 2008 WL 4684183, at 3 (M.D. Fla. Oct. 22, 2008); Rhea v. Fenmore Industries*, 227 F.R.D. 515, 519 (S.D. Fla. 2005).

Critically, the "at issue" waiver applies only where a party affirmatively injects privileged communications as an element of a claim or defense—not where a party merely denies the opposing party's allegations. PCG has not done so. PCG's denial of bad faith is a purely defensive posture in response to MSH's affirmative claim. PCG has not asserted an affirmative defense of "advice of counsel" or otherwise placed the content of its legal consultations at issue. PCG has not claimed that it relied upon legal advice in exercising the call option as a shield against liability. PCG has simply denied that it acted in bad faith—a denial that every respondent in every bad-faith claim is entitled to make without surrendering the privilege.

Florida courts have consistently held that the mere denial of an opponent's claim—even a claim involving the party's state of mind or intent—does not constitute an "at issue" waiver. See Bray & Gillespie, 2008 WL 4684183, at 4 ("A party does not waive the privilege merely by denying the allegations in the complaint or by asserting that it acted in good faith."); see also Cox v. Administrator U.S. Steel & Carnegie*, 17 F.3d 1386, 1418 (11th Cir. 1994) (holding that "merely denying wrongful intent does not put privileged communications at issue").

MSH's position, if accepted, would eviscerate the attorney-client privilege in every commercial dispute involving allegations of bad faith. Under MSH's theory, any party that denies acting in bad faith—which is, of course, every party against whom bad faith is alleged—would be deemed to have waived its privilege over all communications relating to the conduct at issue. Such a rule would render the privilege meaningless in precisely the circumstances where it is most needed: when parties consult legal counsel about the propriety of contemplated business actions.

MSH has identified no other applicable exception to the attorney-client privilege. The crime-fraud exception does not apply, as MSH has not alleged—nor could it allege—that PCG engaged in criminal conduct or perpetrated a fraud through the exercise of the call option. The common-interest doctrine does not provide MSH with access, as MSH was adverse to PCG with respect to the call option. And MSH has not identified any disclosure to third parties that would constitute a voluntary waiver. Accordingly, the attorney-client privilege fully protects the IC Memoranda, and MSH's motion should be denied on this basis alone.

B. The IC Memoranda Are Protected Work Product

1. The IC Memoranda Were Prepared in Anticipation of Litigation. Independent of the attorney-client privilege, many of the IC Memoranda are also protected by the work-product doctrine because they were prepared in anticipation of litigation or arbitration.

The record demonstrates that the prospect of litigation or arbitration was reasonably anticipated well before PCG delivered the Exercise Notice on January 9, 2023. As early as late 2022, MSH had communicated dissatisfaction with PCG's management of the Property and signaled concerns about the potential exercise of the call option and the valuation methodology that would be employed. Specifically, in correspondence dated October 17, 2022, MSH's principal, Diego Restrepo, wrote to Dominic R. Pellegrino expressing "serious reservations about any attempt to exercise the call option at a valuation that does not fully account for the Property's premium beachfront position and upside potential." In a follow-up communication dated November 29, 2022, MSH stated through counsel that it would "vigorously contest any appraisal that we believe understates value and reserves all rights under the Operating Agreement, including the bad-faith provisions of Section 12.7."

Against this backdrop, PCG's internal evaluation of valuation approaches, risk scenarios, potential responses to MSH's expected challenge, and strategies for ensuring compliance with the OA's procedural and substantive requirements were prepared by or at the direction of PCG's legal and financial advisors with a clear eye toward the dispute that was reasonably anticipated and that ultimately materialized. These materials were not prepared in the routine course of PCG's investment management business; they were prepared specifically because PCG anticipated that MSH would challenge the call-option exercise and the resulting valuation.

Under Florida law, a document is considered to have been prepared "in anticipation of litigation" if "the primary motivating purpose behind the creation of the document was to aid in possible future litigation." Dodson v. Persell, 390 So. 2d 704, 707 (Fla. 1980). Here, the primary motivating purpose behind the creation of the IC Memoranda was precisely to prepare PCG for the legal challenge that MSH had telegraphed. The work-product doctrine therefore applies.

Moreover, many of the IC Memoranda constitute opinion work product—reflecting the mental impressions, conclusions, opinions, and legal theories of PCG's counsel and advisors regarding the strengths and weaknesses of PCG's position, the anticipated arguments of MSH, and the strategic considerations bearing on the call-option exercise. Such opinion work product is entitled to near-absolute protection and may not be discovered even upon a showing of substantial need and undue hardship. See Ryder Truck Rental, 341 So. 2d at 804; Hickman, 329 U.S. at 511 ("Such written statements and mental impressions [of attorneys] are the product of . . . the lawyer's skill and legal knowledge, and . . . were, under our cases, historically and in practice entitled to the same protection.").

2. MSH Cannot Demonstrate Substantial Need or Undue Hardship. Even assuming, arguendo, that some of the IC Memoranda constitute fact work product rather than opinion work product—a characterization that PCG does not concede—MSH cannot satisfy the heightened standard required to overcome the work-product doctrine. Under Florida Rule of Civil Procedure 1.280(b)(4)(A), the requesting party must demonstrate both (1) "substantial need" for the materials and (2) an "inability to obtain the substantial equivalent of the materials by other means without undue hardship."

MSH cannot make either showing. The non-privileged record available to MSH is extensive. MSH already possesses:

• The complete Beacon Valuation Group Inc. appraisal (Dr. Priya Ramanathan, CFA, ASA), concluding an FMV of $151.5 million, which provides MSH's own expert's view of value and the basis for MSH's contention that the Whitfield appraisal understates FMV;

• The preliminary indication of value from Linden Park Advisory LLC (Thomas Carraway, MAI, FRICS), the jointly retained neutral appraiser, estimating FMV within a range of $130.0 million to $138.0 million;

• The complete Whitfield Realty Advisors LLC appraisal ($118.0 million), including all supporting data, comparable sales analyses, market studies, rent rolls, operating projections, and the engagement letter;

• All correspondence between PCG and Whitfield Realty Advisors LLC regarding the engagement, data requests, property inspections, and delivery of the appraisal;

• Deposition testimony of Gerald K. Whitfield, MAI (September 18, 2023), covering the full scope of his appraisal methodology, data inputs, assumptions, and conclusions;

• Deposition testimony of Dr. Priya Ramanathan, CFA, ASA (September 18, 2023), providing MSH's expert's analysis of the areas of disagreement with the Whitfield appraisal;

• Deposition testimony of Dominic R. Pellegrino, Managing Member of PCG (October 10, 2023), during which Mr. Pellegrino was questioned about his decision to exercise the call option, his selection of Whitfield, the information provided to Whitfield, and the Property's capital expenditure and maintenance history;

• Deposition testimony of Nathaniel Cordero, Director of Asset Management (October 10, 2023), regarding the Property's physical condition, capital expenditure program, and deferred maintenance;

• All PGV financial statements, capital account records, tax returns, property management reports, renovation budgets and invoices, and communications with third parties including the franchisor and the lender; and

• All non-privileged communications between PCG and MSH.

In light of this extensive record, MSH has ample evidence from which to develop and present its bad-faith claim without any access to PCG's privileged deliberative materials. The IC Memoranda are not the sole or even the primary source of information about PCG's valuation process. The objective evidence—the Whitfield appraisal, the competing Beacon appraisal, the Linden Park preliminary indication, the financial records, and the deposition testimony of the appraiser, the Managing Member, and the asset manager—provides the factual foundation that is necessary and sufficient for MSH to press its claims.

MSH's assertion that it "cannot fully evaluate" PCG's bad faith without the IC Memoranda is conclusory and unsupported. MSH has identified no specific factual question that can be answered only by the IC Memoranda and that is unanswerable through other available evidence. The substantial-need and undue-hardship requirements exist precisely to prevent fishing expeditions of the kind that MSH's motion represents.

C. MSH's "Bad Faith" Theory Does Not Override Privilege Protections

1. The Bad-Faith Claim Under OA Section 12.7 Does Not Create a Blanket discovery Right. MSH's motion rests on the implicit premise that the bad-faith standard of OA Section 12.7 creates a special discovery right that transcends the ordinary rules of privilege and work-product protection. This premise is unsupported by the text of the Operating Agreement, Florida law, or any persuasive authority.

OA Section 12.7 provides as follows:

"In the event that the Manager exercises the Call Option in bad faith or with the intent to materially understate the Fair Market Value of the Membership Interest to be redeemed, the Purchase Price shall include a penalty in an amount up to twenty-five percent (25%) of the determined Fair Market Value of the redeemed Membership Interest, as determined by the Arbitrator."

This provision creates a factual inquiry into the Manager's conduct—specifically, whether the Manager exercised the call option "in bad faith" or "with the intent to materially understate Fair Market Value." It does not create a right to examine the Manager's privileged legal deliberations. Nor does it impose a heightened disclosure obligation that overrides the attorney-client privilege or the work-product doctrine.

The "bad faith" standard under OA Section 12.7 is properly assessed by reference to objective evidence of the Manager's conduct in exercising the call option. Relevant considerations include:

• The selection of the appraiser: whether the Manager selected a qualified, independent MAI-certified appraiser, as required by OA Section 12.4(a), or whether the Manager selected an appraiser known to produce favorable valuations or subject to improper influence;

• The reasonableness of the appraisal methodology: whether the appraisal employed standard and generally accepted valuation methodologies appropriate for hospitality real estate, or whether the methodology was designed to suppress value;

• The Manager's compliance with the OA's procedural requirements: whether the Manager timely delivered the Exercise Notice, provided necessary access to Property information, and tendered the calculated redemption price;

• The treatment of the Property in the period leading up to the appraisal: whether the Manager deferred maintenance, reduced capital expenditures, or otherwise managed the Property in a manner designed to depress its appraised value; and

• The degree of divergence between the competing appraisals: the extent to which the Manager's appraisal diverges from independent market evidence.

MSH can and has developed its bad-faith theory through precisely these categories of non-privileged evidence. MSH points to the 28.4% divergence between the Whitfield appraisal ($118.0 million) and the Beacon appraisal ($151.5 million) as evidence that the Whitfield appraisal is unreliable. MSH contends that the Whitfield appraisal employed an excessively high capitalization rate (9.5%) and an excessively high discount rate (10.75%), compared to the 8.5% cap rate and 7.75% terminal capitalization rate used in the Beacon appraisal. MSH alleges that PCG deferred approximately $8.2 million in necessary maintenance and capital expenditures in violation of OA Section 8.3, thereby depressing the Property's value. And MSH has obtained extensive deposition testimony from both the appraiser and PCG's principals about the facts underlying these contentions.

None of these evidentiary avenues requires access to PCG's privileged internal deliberations. The bad-faith inquiry is directed at what PCG did—not at the privileged legal advice it received about what it could or should do. Granting MSH's motion would conflate the objective standard of bad faith with a subjective inquiry into privileged communications, fundamentally distorting the nature of the claim.

2. Permitting discovery Would Chill Legitimate Legal Consultation. The policy concerns underlying the attorney-client privilege are implicated with particular force in the context of MSH's motion. If parties exercising contractual call options could be compelled to produce their internal legal deliberations whenever the counterparty alleges "bad faith"—as the counterparty will virtually always do in a contested buyout—the privilege would be effectively gutted in every commercial buyout dispute.

Parties contemplating the exercise of contractual options regularly and appropriately consult legal and financial advisors about the applicable legal standards, the proper procedures, the selection of appraisers, and the risks of challenge or dispute. These consultations are precisely the type of communications that the attorney-client privilege is designed to protect. See Upjohn Co. v. United States, 449 U.S. 383, 389 (1981) ("The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client.").

PCG had every right to consult with legal and financial advisors about the call-option process—indeed, responsible corporate governance demanded that it do so. The consultations reflected in the IC Memoranda are evidence of PCG's diligence in ensuring compliance with the Operating Agreement, not evidence of bad faith. To penalize PCG for seeking legal guidance by stripping away the privilege that attaches to those consultations would create a perverse incentive for parties in similar situations to forgo legal advice, increasing the likelihood of errors and disputes rather than reducing them.

The Arbitrator should decline MSH's invitation to adopt a rule that would have such far-reaching and harmful consequences.

D. PCG's Privilege Log Is Adequate and Compliant

MSH's motion includes an ancillary challenge to the adequacy of PCG's Privilege Log. This challenge is without merit.

PCG served a detailed Supplemental Production Log and Privilege Log that identifies each of the thirty-seven (37) withheld documents and twelve (12) partially redacted documents with the following information:

• The Bates number or range assigned to the document;

• The date of the document;

• The author(s) of the document;

• The recipient(s) of the document;

• A general description of the subject matter of the document, stated with sufficient specificity to allow evaluation of the privilege claim without revealing privileged content; and

• The specific privilege or protection asserted (attorney-client privilege, work-product doctrine, or both), together with a brief explanation of the basis for the assertion.

This format complies in all respects with the requirements established by the Arbitrator at the May 15, 2023 preliminary conference, at which the Arbitrator directed the parties to "identify withheld documents with sufficient specificity to permit evaluation of the privilege claim, including the date, author, recipient, general subject matter, and basis for the asserted privilege." PCG's Privilege Log satisfies each of these requirements.

MSH's assertion that the Privilege Log is "insufficient" or "boilerplate" is belied by the document itself. Each entry in the log provides particularized information specific to the document at issue, including, where applicable, identification of the specific legal advisor whose advice is reflected in the document and the specific legal issue to which the communication relates. The Privilege Log does not simply recite the words "attorney-client privilege" or "work product" without elaboration; it provides a substantive basis for each assertion of privilege that is sufficient to allow the Arbitrator and opposing counsel to evaluate the claim.

To the extent MSH contends that the Privilege Log fails to identify certain documents with adequate specificity, the appropriate remedy is not wholesale production of the documents—as MSH's motion demands—but rather a request for supplementation of the log or, if warranted, in camera review by the Arbitrator. PCG has demonstrated its willingness to comply with the Arbitrator's directives regarding privilege logging and remains prepared to supplement its log if the Arbitrator identifies any deficiency.

E. Alternative Relief: In Camera Review

Should the Arbitrator have any doubt as to the applicability of the attorney-client privilege or the work-product doctrine to any specific document or category of documents, PCG respectfully requests that the Arbitrator conduct an in camera review of the disputed documents rather than ordering wholesale production to MSH.

In camera review is the established and appropriate procedure under Florida law and JAMS practice to resolve privilege disputes without waiving the protections at issue. See Southern Bell, 632 So. 2d at 1384 ("When the trial court has any doubt regarding the privileged nature of the documents, it should make an in camera inspection."); see also JAMS Comprehensive Arbitration Rules, Rule 17(a) (conferring discretion upon the arbitrator to manage discovery, including by reviewing documents in camera). In camera review permits the Arbitrator to examine each disputed document, assess the applicability of the privilege on a document-by-document basis, and determine whether any document or portion thereof should be produced—all without requiring production to the opposing party before the privilege determination is made.

PCG is prepared to submit all thirty-seven (37) withheld documents and all twelve (12) partially redacted documents to the Arbitrator for in camera review upon direction from the Arbitrator. PCG will provide the documents in their original format, together with a copy of the Privilege Log and any supplemental explanations that the Arbitrator may require, so that the Arbitrator may conduct a thorough and informed evaluation of each privilege claim.

This procedure respects both parties' interests: it provides the Arbitrator with full information to make an informed ruling, while preserving PCG's privilege protections against premature or unwarranted disclosure. Should the Arbitrator determine upon in camera review that any document is not, in fact, protected, PCG will comply with any production order. Should the Arbitrator determine that some documents are protected and others are not, in camera review permits the Arbitrator to fashion a tailored order that balances the parties' competing interests without resort to the blunt instrument of wholesale compulsion.

V. CONCLUSION

For the foregoing reasons, Respondent Pellegrino Capital Group LLC respectfully requests that the Arbitrator enter an order:

1. Denying Claimant Meridian Shores Hospitality LLC's Motion to Compel Production of Documents in its entirety; or

2. In the alternative, directing that the thirty-seven (37) withheld documents and twelve (12) partially redacted documents be submitted to the Arbitrator for in camera review, with any compelled production limited to the narrowest possible scope following such review.

PCG has complied fully with its discovery obligations in this proceeding, producing in excess of 42,000 pages of responsive, non-privileged documents encompassing the complete Whitfield appraisal, all financial statements, capital account records, tax returns, property management reports, renovation budgets and invoices, and communications with third parties and between the parties. PCG has properly withheld a limited number of documents—thirty-seven (37) in full and twelve (12) in part—as identified in its Supplemental Production Log and Privilege Log, on the well-established grounds of attorney-client privilege and the work-product doctrine.

MSH's motion is an overbroad attempt to gain access to PCG's most sensitive privileged deliberations—deliberations that are not necessary for the adjudication of MSH's claims given the extensive non-privileged record already available. The bad-faith inquiry under OA Section 12.7 is properly resolved on the basis of objective evidence of PCG's conduct—the appraisal itself, the competing appraisals, the financial records, the property's physical condition, and the deposition testimony—not on the basis of privileged communications between PCG and its legal counsel. MSH's theory that the mere allegation of bad faith entitles it to wholesale access to privileged materials finds no support in Florida law and, if adopted, would have a profoundly chilling effect on the ability of parties to seek and receive legal counsel in connection with the exercise of contractual rights.

The Arbitrator should deny MSH's motion.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Francesca Morano, Esq. Partner Florida Bar No. 987214

Simone Laroche, Esq. Lead Associate Florida Bar No. 1041876

801 Brickell Avenue, Suite 2800 Miami, Florida 33131 Telephone: (305) 555-7200 Facsimile: (305) 555-7201

Email: fmorano@calderwoodharkness.com

Email: slaroche@calderwoodharkness.com

Counsel for Respondent Pellegrino Capital Group LLC 1900 Bayshore Boulevard, Suite 1400 Tampa, Florida 33606

Dated: November 17, 2023

CERTIFICATE OF SERVICE

I, Francesca Morano, hereby certify that on November 17, 2023, a true and correct copy of the foregoing Respondent Pellegrino Capital Group LLC's Opposition to Claimant's Motion to Compel Production of Documents was served upon the following by electronic mail and via the JAMS electronic filing system:

Victoria Castillo, Esq., Partner Ryan Matsuda, Esq., Senior Associate Hargrove, Dunlap & Castillo LLP 1395 Brickell Avenue, Suite 3100 Miami, Florida 33131

Email: vcastillo@hdclaw.com

Email: rmatsuda@hdclaw.com

Counsel for Claimant Meridian Shores Hospitality LLC

A courtesy copy was simultaneously transmitted to:

Hon. Margaret Liu Chen (Ret.) JAMS 1 Independent Drive, Suite 1600 Jacksonville, Florida 32202

Email: jchen@jamsadr.com

________________________________________

Francesca Morano, Esq.

Component	Amount
Appraised FMV of 100% of JV Assets	$118,000,000
Less: Outstanding Indebtedness (Gulf Atlantic Loan)	($48,600,000)
Net Equity Value	$69,400,000
MSH's 35% Share of Net Equity	$24,290,000
Plus: Accrued Preferred Return (OA § 5.2)	$17,010,000
Total Redemption Price	$41,300,000

JAMS ARBITRATION Jacksonville, Florida Resolution Center 1 Independent Drive, Suite 1600, Jacksonville, FL 32202
JAMS Ref. No. 1440032871
Before Hon. Margaret Liu Chen (Ret.), Arbitrator
MERIDIAN SHORES HOSPITALITY LLC,
Claimant,
v.
PELLEGRINO CAPITAL GROUP LLC,
Respondent.
RESPONDENT PELLEGRINO CAPITAL GROUP LLC'S OPPOSITION TO CLAIMANT'S MOTION TO COMPEL PRODUCTION OF DOCUMENTS
November 17, 2023
Respondent Pellegrino Capital Group LLC ("PCG" or "Respondent"), by and through its undersigned counsel, Calderwood & Harkness LLP, respectfully submits this Opposition to the Motion to Compel Production of Documents filed by Claimant Meridian Shores Hospitality LLC ("MSH" or "Claimant") on November 6, 2023, and states as follows:
I. PRELIMINARY STATEMENT
PCG respectfully opposes the motion to compel filed by MSH on November 6, 2023, seeking production of PCG's internal investment-committee memoranda and related deliberative documents (collectively, the "IC Memoranda"). MSH's motion targets approximately fourteen (14) categories of internal documents reflecting PCG's privileged communications with legal counsel and confidential business deliberations regarding the valuation of The Palmetto Grand Resort & Spa, located at 650 Mandalay Avenue, Clearwater Beach, Florida 33767 (the "Property"), and the exercise of the call option under Section 12.4 of the Amended and Restated Operating Agreement of Palmetto Grand Ventures LLC, dated June 15, 2017 (the "Operating Agreement" or "OA").
The IC Memoranda are squarely protected by the attorney-client privilege and the work-product doctrine. MSH has failed to establish any cognizable legal basis for overriding these protections. Instead, MSH advances a sweeping theory that the mere assertion of "bad faith" under OA Section 12.7 entitles it to carte blanche access to PCG's most sensitive privileged communications. This theory finds no support in Florida law, the JAMS Comprehensive Arbitration Rules, or established arbitral practice, and it should be rejected.
The motion is particularly inappropriate given the extraordinary scope of the discovery that PCG has already provided. PCG produced in excess of 42,000 pages of responsive documents by the August 22, 2023 production deadline established by the Arbitrator at the May 15, 2023 preliminary conference. That production included, without limitation, the full and complete appraisal report prepared by Whitfield Realty Advisors LLC ("Whitfield"), concluding a Fair Market Value ("FMV") of $118.0 million for one hundred percent (100%) of the joint venture assets as of December 31, 2022; all financial statements of Palmetto Grand Ventures LLC ("PGV") for fiscal years 2017 through 2022; the complete Operating Agreement together with all amendments and exhibits; all capital account records reflecting contributions and distributions; and all non-privileged communications with third parties, including Aurelian Hotels & Resorts Inc. (the franchisor) and Gulf Atlantic National Bank (the senior lender). MSH has received all of this material.
In addition, MSH has obtained extensive testimony through discovery. MSH conducted the expert deposition of Gerald K. Whitfield, MAI (the appraiser retained by PCG) on September 18, 2023, during which Mr. Whitfield was examined for more than seven hours regarding every material aspect of his appraisal methodology, comparable selection, cap-rate analysis, and discount-rate assumptions. MSH also deposed PCG's Managing Member, Dominic R. Pellegrino, and its Director of Asset Management, Nathaniel Cordero, on October 10, 2023. Through these depositions and the documentary record, MSH has had—and continues to have—ample opportunity to develop its bad-faith theory without invading PCG's privileged deliberative process.
At its core, MSH's motion is a transparent attempt to penetrate PCG's internal legal and business deliberations in order to bolster what remains an unsubstantiated claim of "bad faith" under OA Section 12.7. The motion should be denied in its entirety, or, in the alternative, the Arbitrator should conduct an in camera review of the disputed documents to confirm that they are protected.
II. STATEMENT OF RELEVANT FACTS
A. Background of the Joint Venture and Call-Option Exercise
Palmetto Grand Ventures LLC ("PGV") was organized as a Florida limited liability company on June 15, 2017, under Florida Filing No. L17000124583. PGV was formed for the purpose of acquiring, renovating, and operating The Palmetto Grand Resort & Spa, a full-service luxury resort property situated on approximately 8.7 acres of beachfront land on Clearwater Beach, Florida. The resort comprises 347 guest rooms, three full-service restaurants, a 22,000-square-foot spa and wellness center, two outdoor pools, a private beach club, and approximately 28,000 square feet of meeting and event space.
The Operating Agreement executed on June 15, 2017, established the following ownership and governance structure: PCG holds a sixty-five percent (65%) membership interest in PGV and serves as the sole Manager, responsible for the day-to-day operations, capital planning, and strategic management of the Property. MSH holds a thirty-five percent (35%) membership interest in PGV as a passive member with limited consent rights over certain "Major Decisions" as defined in OA Section 7.2, including the incurrence of debt in excess of $5.0 million, the sale of the Property, and amendments to the Operating Agreement.
PGV acquired the Property on August 1, 2017, for a purchase price of $87.5 million. The acquisition was financed through a $61.25 million senior loan from Gulf Atlantic National Bank (Loan No. CRE-2017-06284), representing a loan-to-value ratio of approximately 70%, together with equity contributions from the Members. Pursuant to OA Section 4.1, PCG contributed $18,562,500 in initial capital and MSH contributed $10,000,000 in initial capital, consistent with their respective membership percentages subject to the negotiated allocation set forth in the capital contribution schedule attached to the Operating Agreement as Exhibit B.
Following the acquisition, PGV undertook a comprehensive renovation and repositioning of the Property during the period from 2017 through 2019, at a total cost of approximately $24.3 million. Capital contributions for the renovation were made by the Members in accordance with the capital call provisions of OA Section 4.3: PCG contributed $15,795,000 and MSH contributed $8,505,000 toward the renovation program. The renovation included a complete remodel of all 347 guest rooms, substantial upgrades to the food and beverage outlets, the addition of the spa and wellness center, enhancements to the meeting and event space, and improvements to the Property's exterior, landscaping, and pool areas.
Following the renovation, the Property achieved strong operating performance. For fiscal year 2022—the most recent full year prior to the call-option exercise—the Property generated total revenue of approximately $62.8 million, revenue per available room ("RevPAR") of $289, net operating income ("NOI") of approximately $18.4 million, and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $19.7 million. These figures reflected the Property's positioning as a premier luxury resort in the competitive Clearwater Beach/Tampa Bay market.
Section 12.4 of the Operating Agreement grants PCG, as Manager, the right to purchase MSH's entire membership interest in PGV at "Fair Market Value" upon and after the fifth anniversary of the formation date—i.e., on or after June 15, 2022. As specified in OA Section 12.4(a), the "Fair Market Value" of the membership interest to be redeemed is to be determined by an independent MAI-certified appraiser selected by the Manager and engaged at the Manager's expense. OA Section 12.4(b) further provides that the appraisal shall determine the value of 100% of PGV's assets on a fee-simple, unencumbered basis, with the redemption price for MSH's interest to be calculated by deducting outstanding indebtedness from the aggregate asset value, applying MSH's membership percentage, and adding any accrued but unpaid preferred returns.
PCG delivered its written notice of exercise of the call option (the "Exercise Notice") to MSH on January 9, 2023, in accordance with the notice provisions of OA Section 15.1. The Exercise Notice stated that PCG was exercising its rights under OA Section 12.4 and that an MAI-certified appraisal would be forthcoming.
Gerald K. Whitfield, MAI, of Whitfield Realty Advisors LLC, completed his appraisal of the Property on February 10, 2023. Mr. Whitfield's appraisal, which employed income capitalization, discounted cash flow, and sales comparison approaches, concluded that the Fair Market Value of 100% of PGV's assets was $118.0 million as of December 31, 2022.
Based on the Whitfield appraisal, PCG calculated the redemption price for MSH's 35% membership interest as follows:
PCG tendered payment in the amount of $41,300,000 to MSH on March 1, 2023, together with the complete Whitfield appraisal and a detailed calculation of the redemption price. MSH rejected the tender on March 10, 2023, asserting that the Whitfield appraisal materially understated the Property's value and that the call-option exercise was conducted in bad faith.
B. The Arbitration Proceeding
On March 20, 2023, MSH filed its Demand for Arbitration with JAMS, asserting two principal claims: (1) that PCG exercised the call option in "bad faith" and with the "intent to materially understate Fair Market Value" within the meaning of OA Section 12.7, entitling MSH to a penalty of up to 25% of the determined FMV of the redeemed interest; and (2) that PCG breached its obligations under OA Section 8.3 by deferring approximately $8.2 million in necessary maintenance and capital expenditures in the period leading up to the appraisal in order to suppress the Property's appraised value.
PCG filed its Response and Counterclaim on April 5, 2023. In its Response, PCG denied all allegations of bad faith and breach, asserting that the call option was exercised in strict compliance with the Operating Agreement, that the Whitfield appraisal was conducted by a fully qualified, independent MAI-certified appraiser utilizing standard and accepted valuation methodologies, and that PCG maintained the Property in accordance with its obligations under OA Section 8.3. In its Counterclaim, PCG seeks a declaration that the redemption price of $41,300,000 represents the correct Fair Market Value of MSH's membership interest.
The Honorable Margaret Liu Chen (Ret.) was appointed as the sole Arbitrator on April 28, 2023, following the parties' agreement on her selection in accordance with the JAMS Comprehensive Arbitration Rules and OA Section 15.2. Judge Chen served for eighteen years on the Florida Fourth District Court of Appeal and brings extensive experience in complex commercial disputes, including real estate joint venture and valuation matters.
A preliminary conference was held on May 15, 2023, at which the Arbitrator established a discovery schedule, set document production deadlines, and addressed the scope and timing of expert and party depositions. The Arbitrator directed the parties to complete initial document production by August 22, 2023, and set a final discovery cutoff consistent with a final hearing anticipated for early 2024.
MSH retained Beacon Valuation Group Inc. to provide an independent appraisal of the Property. Dr. Priya Ramanathan, CFA, ASA, a principal of Beacon Valuation Group Inc. with extensive experience in hospitality real estate valuation, completed her appraisal on April 14, 2023, concluding that the Fair Market Value of 100% of PGV's assets was $151.5 million as of December 31, 2022. The Beacon appraisal diverged from the Whitfield appraisal by approximately 28.4%—$33.5 million.
This divergence exceeded the 10% threshold established in OA Section 12.4(c), which provides that if the Claimant obtains a competing appraisal and the two appraisals diverge by more than 10%, the parties shall jointly retain a neutral third appraiser whose determination shall be final and binding. Accordingly, on June 1, 2023, the parties jointly retained Linden Park Advisory LLC to serve as the neutral appraiser. Thomas Carraway, MAI, FRICS, the principal of Linden Park Advisory LLC, was appointed for this purpose. On July 14, 2023, Linden Park delivered a preliminary indication of value, estimating the FMV of 100% of PGV's assets within a range of $130.0 million to $138.0 million. The final determination by Linden Park remains pending.
Expert depositions were conducted on September 18, 2023. MSH's counsel conducted a full-day deposition of Gerald K. Whitfield, MAI, during which Mr. Whitfield was questioned extensively regarding his selection of comparable transactions, his capitalization-rate analysis (9.5% cap rate as compared to the 8.5% cap rate employed in the Beacon appraisal), his discount-rate assumptions (10.75% as compared to Beacon's 7.75% terminal capitalization rate), his treatment of deferred maintenance reserves, and his overall methodology. PCG's counsel conducted a deposition of Dr. Priya Ramanathan, CFA, ASA, of equivalent scope.
Party depositions of Dominic R. Pellegrino, the Managing Member of PCG, and Nathaniel Cordero, PCG's Director of Asset Management responsible for oversight of the Property, were conducted on October 10, 2023. During Mr. Pellegrino's deposition, MSH's counsel questioned him regarding his decision to exercise the call option, his selection of Whitfield Realty Advisors LLC as the appraiser, the information provided to Mr. Whitfield, and the Property's capital expenditure and maintenance history. Mr. Cordero was examined regarding the Property's physical condition, capital expenditure program, deferred maintenance log, and the scope of renovations and repairs undertaken during 2021 and 2022.
C. PCG's Document Production and MSH's Motion to Compel
PCG completed its document production by the August 22, 2023 deadline. In total, PCG produced in excess of 42,000 pages of responsive, non-privileged documents. The production encompassed the following categories of material:
• The complete Whitfield Realty Advisors LLC appraisal report, together with all supporting comparable sales data, market studies, rent rolls, operating projections, and correspondence between PCG and Whitfield;
• PGV's audited and unaudited financial statements for fiscal years 2017 through 2022, including balance sheets, income statements, statements of cash flows, and accompanying notes;
• All capital account ledgers reflecting Member contributions, distributions, allocations of profit and loss, and accrued preferred returns;
• Correspondence and communications with Whitfield Realty Advisors LLC relating to the engagement, scope of work, property inspections, data requests, and delivery of the appraisal;
• Correspondence and communications with Gulf Atlantic National Bank relating to the senior loan, including loan agreements, amendments, draw requests, financial covenants, compliance certificates, and periodic lender reports;
• Correspondence and communications with Aurelian Hotels & Resorts Inc. relating to the franchise agreement, brand standards compliance, property improvement plans, and performance benchmarking;
• Property management reports, including monthly and annual operating statements, occupancy reports, guest satisfaction surveys, and competitive market analyses;
• Renovation budgets, contracts with general contractors and subcontractors, change orders, payment applications, invoices, and certificates of substantial completion for the 2017–2019 renovation program;
• Federal and state tax returns for PGV for fiscal years 2017 through 2022, prepared by Grantham, Pryce & Associates CPAs (Howard Grantham, CPA), together with supporting workpapers and K-1 schedules; and
• All non-privileged communications between PCG and MSH, including correspondence, meeting minutes, and member notices.
Notwithstanding this comprehensive production, PCG withheld a total of thirty-seven (37) documents in their entirety and partially redacted twelve (12) additional documents on the grounds of attorney-client privilege, work-product protection, or both. PCG served a detailed Supplemental Production Log and Privilege Log identifying each withheld or redacted document by Bates number range, date, author, recipient(s), general subject matter, and the specific privilege or protection asserted. The Privilege Log was served in connection with the production and supplemented thereafter in accordance with the Arbitrator's directives.
On November 6, 2023, MSH, through its counsel Victoria Castillo and Ryan Matsuda of Hargrove, Dunlap & Castillo LLP, filed the instant Motion to Compel Production of Documents. MSH's motion seeks an order compelling PCG to produce all thirty-seven (37) withheld IC Memoranda and all unredacted versions of the twelve (12) partially redacted documents. MSH contends that the IC Memoranda are relevant to its bad-faith inquiry under OA Section 12.7 and that PCG has waived the attorney-client privilege by placing its "state of mind" at issue through its denial of bad faith. MSH further contends that the work-product doctrine does not apply because, MSH asserts, the IC Memoranda were prepared in the ordinary course of business rather than in anticipation of litigation.
PCG respectfully submits that MSH's arguments are without merit and that the motion should be denied for the reasons set forth below.
III. LEGAL STANDARD
Under the JAMS Comprehensive Arbitration Rules, Rule 17(a), the Arbitrator has broad discretion to manage discovery in a manner consistent with the efficient resolution of the dispute. Rule 17(a) further provides that the Arbitrator may reference the Federal Rules of Civil Procedure as guidelines in resolving discovery disputes, while recognizing that arbitration proceedings are not bound by the full scope of judicial discovery.
It is well established that the party resisting discovery bears the initial burden of establishing that a claimed privilege or protection applies to the withheld materials. See, e.g., Southern Bell Tel. & Tel. Co. v. Deason, 632 So. 2d 1377, 1383 (Fla. 1994). Once the resisting party has made a prima facie showing that the privilege applies, however, the burden shifts to the requesting party to demonstrate that a recognized exception overrides the privilege or that the requirements for piercing the work-product doctrine have been satisfied. Id.
The attorney-client privilege under Florida law is codified at Section 90.502, Florida Statutes. Section 90.502(1)(c) defines a "confidential communication" as one "not intended to be disclosed to third persons other than" those to whom disclosure is made in furtherance of the rendition of legal services or those reasonably necessary for the transmission of the communication. Section 90.502(2) provides that a "client has a privilege to refuse to disclose, and to prevent any other person from disclosing, the contents of confidential communications when such other person learned of the communications because they were made in the rendition of legal services to the client." The privilege applies regardless of whether the communication was made before or after the commencement of litigation, provided the communication was made for the purpose of rendering or obtaining legal services. See Ashbury Partners LLC v. Indigo Sys. Corp., No. 07-1589, 2009 WL 10671040, at *4 (M.D. Fla. Feb. 13, 2009).
The work-product doctrine under Florida law is codified at Florida Rule of Civil Procedure 1.280(b)(4), which provides protection for "documents and tangible things . . . prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative." The doctrine encompasses two tiers of protection. Fact work product—consisting of factual compilations and investigative materials—may be discovered upon a showing of substantial need and an inability to obtain the substantial equivalent without undue hardship. See Fla. R. Civ. P. 1.280(b)(4)(A). Opinion work product—consisting of mental impressions, conclusions, opinions, and legal theories—is entitled to near-absolute protection and is virtually immune from discovery. See Ryder Truck Rental, Inc. v. Central Packing Co., 341 So. 2d 802, 804 (Fla. 3d DCA 1977); see also Hickman v. Taylor, 329 U.S. 495, 511 (1947).
Both the attorney-client privilege and the work-product doctrine may be asserted in JAMS arbitration proceedings. The JAMS Comprehensive Arbitration Rules expressly recognize the applicability of privilege claims in the context of arbitral discovery, and the parties' agreement in OA Section 15.2 specifies that "all disputes arising out of or relating to this Agreement shall be governed by the substantive law of the State of Florida, including its rules of privilege and discovery." Accordingly, both protections are fully applicable in this proceeding.
IV. ARGUMENT
A. The Internal Investment-Committee Memoranda Are Protected by the Attorney-Client Privilege
1. The IC Memoranda Reflect Privileged Legal Advice. The IC Memoranda at issue in MSH's motion were prepared during the period from approximately October 2022 through January 2023—the critical period during which PCG was evaluating whether and how to exercise the call option under OA Section 12.4. During this period, PCG's principals, including Dominic R. Pellegrino (Managing Member), Adriana Pellegrino-Voss (Senior Vice President of Investments), and Marcus Thiel (Chief Financial Officer), engaged in a series of confidential deliberations and consultations with legal counsel regarding the call-option mechanics, the requirements for determining "Fair Market Value" under the Operating Agreement, and the legal risks and obligations attendant to the exercise of the call option.
Calderwood & Harkness LLP was formally engaged by PCG on March 22, 2023 (Matter No. 1027-00003), to represent PCG in connection with the dispute that arose following MSH's rejection of the tendered redemption price. However, prior to the formal engagement of Calderwood & Harkness LLP, PCG received legal counsel from its then-outside counsel regarding the call-option mechanics, the interpretation of the "Fair Market Value" standard under OA Section 12.4, the selection and engagement of an independent MAI-certified appraiser, and the procedural requirements for delivering the Exercise Notice and tendering the redemption price. That prior counsel-client relationship is fully protected under Section 90.502, Florida Statutes, and the documents reflecting those consultations are no less privileged because a different firm now represents PCG in this arbitration.
Several of the IC Memoranda contain or directly reflect confidential legal advice received by PCG's principals regarding the legal requirements and risks associated with the call-option exercise. Specifically, these documents include:
• Memoranda prepared by or at the direction of PCG's legal advisors analyzing the interpretation of "Fair Market Value" under OA Section 12.4 and the range of permissible valuation methodologies;
• Internal communications among PCG's investment committee members discussing legal advice received regarding the standard of appraiser independence required under the Operating Agreement;
• Draft communications and strategy memoranda reflecting legal counsel's assessment of potential challenges by MSH and the legal framework governing the bad-faith standard under OA Section 12.7; and
• Confidential deliberations regarding the selection of Whitfield Realty Advisors LLC as the appraiser, including legal counsel's advice regarding appraiser qualifications, conflicts of interest, and the scope of the engagement letter.
Each of these communications satisfies all four elements of the attorney-client privilege under Florida law: (1) the communications were made between PCG (the client) and its legal advisors (the lawyers); (2) the communications were made in confidence; (3) the communications were made for the purpose of rendering or obtaining legal services and advice; and (4) the privilege has not been waived. See § 90.502, Fla. Stat.; Southern Bell, 632 So. 2d at 1383.
The fact that the IC Memoranda also contain business analysis and financial considerations does not strip them of privilege protection. It is well established under Florida law that where a communication involves both legal and business considerations, the communication is privileged so long as "the predominant purpose of the communication is to render or obtain legal advice." See Raytheon, 2009 WL 10671040, at 5; see also In re Grand Jury Subpoena*, 599 F.2d 504, 510 (2d Cir. 1979) (applying the "primary purpose" test). Here, the IC Memoranda were generated in the context of a decision that was fundamentally shaped by legal requirements—the exercise of a contractual option governed by specific legal standards for valuation, appraiser selection, and good-faith conduct. The legal advice interwoven throughout these documents was their primary purpose, and they are protected accordingly.
2. MSH Has Identified No Applicable Exception to the Attorney-Client Privilege. MSH's primary argument for overcoming the attorney-client privilege is that PCG placed its "state of mind" at issue by denying bad faith, thereby effecting an implied waiver of the privilege. This argument is without merit under Florida law and should be rejected.
The so-called "at issue" or "implied" waiver doctrine provides that a party may waive the attorney-client privilege when it affirmatively places privileged communications at issue in the litigation—that is, when the party injects the privileged communication itself as an element of a claim or affirmative defense. See Bray & Gillespie Mgmt. LLC v. Lexington Ins. Co., No. 6:07-cv-222-Orl-35KRS, 2008 WL 4684183, at 3 (M.D. Fla. Oct. 22, 2008); Rhea v. Fenmore Industries*, 227 F.R.D. 515, 519 (S.D. Fla. 2005).
Critically, the "at issue" waiver applies only where a party affirmatively injects privileged communications as an element of a claim or defense—not where a party merely denies the opposing party's allegations. PCG has not done so. PCG's denial of bad faith is a purely defensive posture in response to MSH's affirmative claim. PCG has not asserted an affirmative defense of "advice of counsel" or otherwise placed the content of its legal consultations at issue. PCG has not claimed that it relied upon legal advice in exercising the call option as a shield against liability. PCG has simply denied that it acted in bad faith—a denial that every respondent in every bad-faith claim is entitled to make without surrendering the privilege.
Florida courts have consistently held that the mere denial of an opponent's claim—even a claim involving the party's state of mind or intent—does not constitute an "at issue" waiver. See Bray & Gillespie, 2008 WL 4684183, at 4 ("A party does not waive the privilege merely by denying the allegations in the complaint or by asserting that it acted in good faith."); see also Cox v. Administrator U.S. Steel & Carnegie*, 17 F.3d 1386, 1418 (11th Cir. 1994) (holding that "merely denying wrongful intent does not put privileged communications at issue").
MSH's position, if accepted, would eviscerate the attorney-client privilege in every commercial dispute involving allegations of bad faith. Under MSH's theory, any party that denies acting in bad faith—which is, of course, every party against whom bad faith is alleged—would be deemed to have waived its privilege over all communications relating to the conduct at issue. Such a rule would render the privilege meaningless in precisely the circumstances where it is most needed: when parties consult legal counsel about the propriety of contemplated business actions.
MSH has identified no other applicable exception to the attorney-client privilege. The crime-fraud exception does not apply, as MSH has not alleged—nor could it allege—that PCG engaged in criminal conduct or perpetrated a fraud through the exercise of the call option. The common-interest doctrine does not provide MSH with access, as MSH was adverse to PCG with respect to the call option. And MSH has not identified any disclosure to third parties that would constitute a voluntary waiver. Accordingly, the attorney-client privilege fully protects the IC Memoranda, and MSH's motion should be denied on this basis alone.
B. The IC Memoranda Are Protected Work Product
1. The IC Memoranda Were Prepared in Anticipation of Litigation. Independent of the attorney-client privilege, many of the IC Memoranda are also protected by the work-product doctrine because they were prepared in anticipation of litigation or arbitration.
The record demonstrates that the prospect of litigation or arbitration was reasonably anticipated well before PCG delivered the Exercise Notice on January 9, 2023. As early as late 2022, MSH had communicated dissatisfaction with PCG's management of the Property and signaled concerns about the potential exercise of the call option and the valuation methodology that would be employed. Specifically, in correspondence dated October 17, 2022, MSH's principal, Diego Restrepo, wrote to Dominic R. Pellegrino expressing "serious reservations about any attempt to exercise the call option at a valuation that does not fully account for the Property's premium beachfront position and upside potential." In a follow-up communication dated November 29, 2022, MSH stated through counsel that it would "vigorously contest any appraisal that we believe understates value and reserves all rights under the Operating Agreement, including the bad-faith provisions of Section 12.7."
Against this backdrop, PCG's internal evaluation of valuation approaches, risk scenarios, potential responses to MSH's expected challenge, and strategies for ensuring compliance with the OA's procedural and substantive requirements were prepared by or at the direction of PCG's legal and financial advisors with a clear eye toward the dispute that was reasonably anticipated and that ultimately materialized. These materials were not prepared in the routine course of PCG's investment management business; they were prepared specifically because PCG anticipated that MSH would challenge the call-option exercise and the resulting valuation.
Under Florida law, a document is considered to have been prepared "in anticipation of litigation" if "the primary motivating purpose behind the creation of the document was to aid in possible future litigation." Dodson v. Persell, 390 So. 2d 704, 707 (Fla. 1980). Here, the primary motivating purpose behind the creation of the IC Memoranda was precisely to prepare PCG for the legal challenge that MSH had telegraphed. The work-product doctrine therefore applies.
Moreover, many of the IC Memoranda constitute opinion work product—reflecting the mental impressions, conclusions, opinions, and legal theories of PCG's counsel and advisors regarding the strengths and weaknesses of PCG's position, the anticipated arguments of MSH, and the strategic considerations bearing on the call-option exercise. Such opinion work product is entitled to near-absolute protection and may not be discovered even upon a showing of substantial need and undue hardship. See Ryder Truck Rental, 341 So. 2d at 804; Hickman, 329 U.S. at 511 ("Such written statements and mental impressions [of attorneys] are the product of . . . the lawyer's skill and legal knowledge, and . . . were, under our cases, historically and in practice entitled to the same protection.").
2. MSH Cannot Demonstrate Substantial Need or Undue Hardship. Even assuming, arguendo, that some of the IC Memoranda constitute fact work product rather than opinion work product—a characterization that PCG does not concede—MSH cannot satisfy the heightened standard required to overcome the work-product doctrine. Under Florida Rule of Civil Procedure 1.280(b)(4)(A), the requesting party must demonstrate both (1) "substantial need" for the materials and (2) an "inability to obtain the substantial equivalent of the materials by other means without undue hardship."
MSH cannot make either showing. The non-privileged record available to MSH is extensive. MSH already possesses:
• The complete Beacon Valuation Group Inc. appraisal (Dr. Priya Ramanathan, CFA, ASA), concluding an FMV of $151.5 million, which provides MSH's own expert's view of value and the basis for MSH's contention that the Whitfield appraisal understates FMV;
• The preliminary indication of value from Linden Park Advisory LLC (Thomas Carraway, MAI, FRICS), the jointly retained neutral appraiser, estimating FMV within a range of $130.0 million to $138.0 million;
• The complete Whitfield Realty Advisors LLC appraisal ($118.0 million), including all supporting data, comparable sales analyses, market studies, rent rolls, operating projections, and the engagement letter;
• All correspondence between PCG and Whitfield Realty Advisors LLC regarding the engagement, data requests, property inspections, and delivery of the appraisal;
• Deposition testimony of Gerald K. Whitfield, MAI (September 18, 2023), covering the full scope of his appraisal methodology, data inputs, assumptions, and conclusions;
• Deposition testimony of Dr. Priya Ramanathan, CFA, ASA (September 18, 2023), providing MSH's expert's analysis of the areas of disagreement with the Whitfield appraisal;
• Deposition testimony of Dominic R. Pellegrino, Managing Member of PCG (October 10, 2023), during which Mr. Pellegrino was questioned about his decision to exercise the call option, his selection of Whitfield, the information provided to Whitfield, and the Property's capital expenditure and maintenance history;
• Deposition testimony of Nathaniel Cordero, Director of Asset Management (October 10, 2023), regarding the Property's physical condition, capital expenditure program, and deferred maintenance;
• All PGV financial statements, capital account records, tax returns, property management reports, renovation budgets and invoices, and communications with third parties including the franchisor and the lender; and
• All non-privileged communications between PCG and MSH.
In light of this extensive record, MSH has ample evidence from which to develop and present its bad-faith claim without any access to PCG's privileged deliberative materials. The IC Memoranda are not the sole or even the primary source of information about PCG's valuation process. The objective evidence—the Whitfield appraisal, the competing Beacon appraisal, the Linden Park preliminary indication, the financial records, and the deposition testimony of the appraiser, the Managing Member, and the asset manager—provides the factual foundation that is necessary and sufficient for MSH to press its claims.
MSH's assertion that it "cannot fully evaluate" PCG's bad faith without the IC Memoranda is conclusory and unsupported. MSH has identified no specific factual question that can be answered only by the IC Memoranda and that is unanswerable through other available evidence. The substantial-need and undue-hardship requirements exist precisely to prevent fishing expeditions of the kind that MSH's motion represents.
C. MSH's "Bad Faith" Theory Does Not Override Privilege Protections
1. The Bad-Faith Claim Under OA Section 12.7 Does Not Create a Blanket discovery Right. MSH's motion rests on the implicit premise that the bad-faith standard of OA Section 12.7 creates a special discovery right that transcends the ordinary rules of privilege and work-product protection. This premise is unsupported by the text of the Operating Agreement, Florida law, or any persuasive authority.
OA Section 12.7 provides as follows:
"In the event that the Manager exercises the Call Option in bad faith or with the intent to materially understate the Fair Market Value of the Membership Interest to be redeemed, the Purchase Price shall include a penalty in an amount up to twenty-five percent (25%) of the determined Fair Market Value of the redeemed Membership Interest, as determined by the Arbitrator."
This provision creates a factual inquiry into the Manager's conduct—specifically, whether the Manager exercised the call option "in bad faith" or "with the intent to materially understate Fair Market Value." It does not create a right to examine the Manager's privileged legal deliberations. Nor does it impose a heightened disclosure obligation that overrides the attorney-client privilege or the work-product doctrine.
The "bad faith" standard under OA Section 12.7 is properly assessed by reference to objective evidence of the Manager's conduct in exercising the call option. Relevant considerations include:
• The selection of the appraiser: whether the Manager selected a qualified, independent MAI-certified appraiser, as required by OA Section 12.4(a), or whether the Manager selected an appraiser known to produce favorable valuations or subject to improper influence;
• The reasonableness of the appraisal methodology: whether the appraisal employed standard and generally accepted valuation methodologies appropriate for hospitality real estate, or whether the methodology was designed to suppress value;
• The Manager's compliance with the OA's procedural requirements: whether the Manager timely delivered the Exercise Notice, provided necessary access to Property information, and tendered the calculated redemption price;
• The treatment of the Property in the period leading up to the appraisal: whether the Manager deferred maintenance, reduced capital expenditures, or otherwise managed the Property in a manner designed to depress its appraised value; and
• The degree of divergence between the competing appraisals: the extent to which the Manager's appraisal diverges from independent market evidence.
MSH can and has developed its bad-faith theory through precisely these categories of non-privileged evidence. MSH points to the 28.4% divergence between the Whitfield appraisal ($118.0 million) and the Beacon appraisal ($151.5 million) as evidence that the Whitfield appraisal is unreliable. MSH contends that the Whitfield appraisal employed an excessively high capitalization rate (9.5%) and an excessively high discount rate (10.75%), compared to the 8.5% cap rate and 7.75% terminal capitalization rate used in the Beacon appraisal. MSH alleges that PCG deferred approximately $8.2 million in necessary maintenance and capital expenditures in violation of OA Section 8.3, thereby depressing the Property's value. And MSH has obtained extensive deposition testimony from both the appraiser and PCG's principals about the facts underlying these contentions.
None of these evidentiary avenues requires access to PCG's privileged internal deliberations. The bad-faith inquiry is directed at what PCG did—not at the privileged legal advice it received about what it could or should do. Granting MSH's motion would conflate the objective standard of bad faith with a subjective inquiry into privileged communications, fundamentally distorting the nature of the claim.
2. Permitting discovery Would Chill Legitimate Legal Consultation. The policy concerns underlying the attorney-client privilege are implicated with particular force in the context of MSH's motion. If parties exercising contractual call options could be compelled to produce their internal legal deliberations whenever the counterparty alleges "bad faith"—as the counterparty will virtually always do in a contested buyout—the privilege would be effectively gutted in every commercial buyout dispute.
Parties contemplating the exercise of contractual options regularly and appropriately consult legal and financial advisors about the applicable legal standards, the proper procedures, the selection of appraisers, and the risks of challenge or dispute. These consultations are precisely the type of communications that the attorney-client privilege is designed to protect. See Upjohn Co. v. United States, 449 U.S. 383, 389 (1981) ("The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer's being fully informed by the client.").
PCG had every right to consult with legal and financial advisors about the call-option process—indeed, responsible corporate governance demanded that it do so. The consultations reflected in the IC Memoranda are evidence of PCG's diligence in ensuring compliance with the Operating Agreement, not evidence of bad faith. To penalize PCG for seeking legal guidance by stripping away the privilege that attaches to those consultations would create a perverse incentive for parties in similar situations to forgo legal advice, increasing the likelihood of errors and disputes rather than reducing them.
The Arbitrator should decline MSH's invitation to adopt a rule that would have such far-reaching and harmful consequences.
D. PCG's Privilege Log Is Adequate and Compliant
MSH's motion includes an ancillary challenge to the adequacy of PCG's Privilege Log. This challenge is without merit.
PCG served a detailed Supplemental Production Log and Privilege Log that identifies each of the thirty-seven (37) withheld documents and twelve (12) partially redacted documents with the following information:
• The Bates number or range assigned to the document;
• The date of the document;
• The author(s) of the document;
• The recipient(s) of the document;
• A general description of the subject matter of the document, stated with sufficient specificity to allow evaluation of the privilege claim without revealing privileged content; and
• The specific privilege or protection asserted (attorney-client privilege, work-product doctrine, or both), together with a brief explanation of the basis for the assertion.
This format complies in all respects with the requirements established by the Arbitrator at the May 15, 2023 preliminary conference, at which the Arbitrator directed the parties to "identify withheld documents with sufficient specificity to permit evaluation of the privilege claim, including the date, author, recipient, general subject matter, and basis for the asserted privilege." PCG's Privilege Log satisfies each of these requirements.
MSH's assertion that the Privilege Log is "insufficient" or "boilerplate" is belied by the document itself. Each entry in the log provides particularized information specific to the document at issue, including, where applicable, identification of the specific legal advisor whose advice is reflected in the document and the specific legal issue to which the communication relates. The Privilege Log does not simply recite the words "attorney-client privilege" or "work product" without elaboration; it provides a substantive basis for each assertion of privilege that is sufficient to allow the Arbitrator and opposing counsel to evaluate the claim.
To the extent MSH contends that the Privilege Log fails to identify certain documents with adequate specificity, the appropriate remedy is not wholesale production of the documents—as MSH's motion demands—but rather a request for supplementation of the log or, if warranted, in camera review by the Arbitrator. PCG has demonstrated its willingness to comply with the Arbitrator's directives regarding privilege logging and remains prepared to supplement its log if the Arbitrator identifies any deficiency.
E. Alternative Relief: In Camera Review
Should the Arbitrator have any doubt as to the applicability of the attorney-client privilege or the work-product doctrine to any specific document or category of documents, PCG respectfully requests that the Arbitrator conduct an in camera review of the disputed documents rather than ordering wholesale production to MSH.
In camera review is the established and appropriate procedure under Florida law and JAMS practice to resolve privilege disputes without waiving the protections at issue. See Southern Bell, 632 So. 2d at 1384 ("When the trial court has any doubt regarding the privileged nature of the documents, it should make an in camera inspection."); see also JAMS Comprehensive Arbitration Rules, Rule 17(a) (conferring discretion upon the arbitrator to manage discovery, including by reviewing documents in camera). In camera review permits the Arbitrator to examine each disputed document, assess the applicability of the privilege on a document-by-document basis, and determine whether any document or portion thereof should be produced—all without requiring production to the opposing party before the privilege determination is made.
PCG is prepared to submit all thirty-seven (37) withheld documents and all twelve (12) partially redacted documents to the Arbitrator for in camera review upon direction from the Arbitrator. PCG will provide the documents in their original format, together with a copy of the Privilege Log and any supplemental explanations that the Arbitrator may require, so that the Arbitrator may conduct a thorough and informed evaluation of each privilege claim.
This procedure respects both parties' interests: it provides the Arbitrator with full information to make an informed ruling, while preserving PCG's privilege protections against premature or unwarranted disclosure. Should the Arbitrator determine upon in camera review that any document is not, in fact, protected, PCG will comply with any production order. Should the Arbitrator determine that some documents are protected and others are not, in camera review permits the Arbitrator to fashion a tailored order that balances the parties' competing interests without resort to the blunt instrument of wholesale compulsion.
V. CONCLUSION
For the foregoing reasons, Respondent Pellegrino Capital Group LLC respectfully requests that the Arbitrator enter an order:
1. Denying Claimant Meridian Shores Hospitality LLC's Motion to Compel Production of Documents in its entirety; or
2. In the alternative, directing that the thirty-seven (37) withheld documents and twelve (12) partially redacted documents be submitted to the Arbitrator for in camera review, with any compelled production limited to the narrowest possible scope following such review.
PCG has complied fully with its discovery obligations in this proceeding, producing in excess of 42,000 pages of responsive, non-privileged documents encompassing the complete Whitfield appraisal, all financial statements, capital account records, tax returns, property management reports, renovation budgets and invoices, and communications with third parties and between the parties. PCG has properly withheld a limited number of documents—thirty-seven (37) in full and twelve (12) in part—as identified in its Supplemental Production Log and Privilege Log, on the well-established grounds of attorney-client privilege and the work-product doctrine.
MSH's motion is an overbroad attempt to gain access to PCG's most sensitive privileged deliberations—deliberations that are not necessary for the adjudication of MSH's claims given the extensive non-privileged record already available. The bad-faith inquiry under OA Section 12.7 is properly resolved on the basis of objective evidence of PCG's conduct—the appraisal itself, the competing appraisals, the financial records, the property's physical condition, and the deposition testimony—not on the basis of privileged communications between PCG and its legal counsel. MSH's theory that the mere allegation of bad faith entitles it to wholesale access to privileged materials finds no support in Florida law and, if adopted, would have a profoundly chilling effect on the ability of parties to seek and receive legal counsel in connection with the exercise of contractual rights.
The Arbitrator should deny MSH's motion.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Francesca Morano, Esq. Partner Florida Bar No. 987214
Simone Laroche, Esq. Lead Associate Florida Bar No. 1041876
801 Brickell Avenue, Suite 2800 Miami, Florida 33131 Telephone: (305) 555-7200 Facsimile: (305) 555-7201
Email: fmorano@calderwoodharkness.com
Email: slaroche@calderwoodharkness.com
Counsel for Respondent Pellegrino Capital Group LLC 1900 Bayshore Boulevard, Suite 1400 Tampa, Florida 33606
Dated: November 17, 2023
CERTIFICATE OF SERVICE
I, Francesca Morano, hereby certify that on November 17, 2023, a true and correct copy of the foregoing Respondent Pellegrino Capital Group LLC's Opposition to Claimant's Motion to Compel Production of Documents was served upon the following by electronic mail and via the JAMS electronic filing system:
Victoria Castillo, Esq., Partner Ryan Matsuda, Esq., Senior Associate Hargrove, Dunlap & Castillo LLP 1395 Brickell Avenue, Suite 3100 Miami, Florida 33131
Email: vcastillo@hdclaw.com
Email: rmatsuda@hdclaw.com
Counsel for Claimant Meridian Shores Hospitality LLC
A courtesy copy was simultaneously transmitted to:
Hon. Margaret Liu Chen (Ret.) JAMS 1 Independent Drive, Suite 1600 Jacksonville, Florida 32202
Email: jchen@jamsadr.com
________________________________________
Francesca Morano, Esq.
Component | Amount
Appraised FMV of 100% of JV Assets | $118,000,000
Less: Outstanding Indebtedness (Gulf Atlantic Loan) | ($48,600,000)
Net Equity Value | $69,400,000
MSH's 35% Share of Net Equity | $24,290,000
Plus: Accrued Preferred Return (OA § 5.2) | $17,010,000
Total Redemption Price | $41,300,000