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

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JAMS ARBITRATION

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

Case Reference No. 1440032871

RESPONDENT PELLEGRINO CAPITAL GROUP LLC'S MEMORANDUM OF LAW IN SUPPORT OF ITS RESPONSE TO DEMAND FOR ARBITRATION AND COUNTERCLAIM FOR DECLARATORY RELIEF

Filed: April 5, 2023

Submitted by:

CALDERWOOD & HARKNESS LLP Francesca Morano, Esq. — Responsible Partner Samuel Eklund, Esq. — Billing Partner Simone Laroche, Esq. — Lead Associate Jeffrey Park, Esq. — Working Associate 801 Brickell Avenue, Suite 2800 Miami, FL 33131 Telephone: (305) 555-7400 Facsimile: (305) 555-7401 fmorano@calderwoodharkness.com seklund@calderwoodharkness.com slaroche@calderwoodharkness.com jpark@calderwoodharkness.com

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

Counsel for Claimant:

Victoria Castillo, Esq. Ryan Matsuda, Esq. HARGROVE, DUNLAP & CASTILLO LLP 1395 Brickell Avenue, Suite 3100 Miami, FL 33131

I. PRELIMINARY STATEMENT

Respondent Pellegrino Capital Group LLC ("PCG") respectfully submits this Memorandum of Law in support of its Response to the Demand for Arbitration and its Counterclaim for Declaratory Relief, both filed contemporaneously herewith. This memorandum sets forth the factual background and legal authority that support PCG's position and demonstrates that Claimant Meridian Shores Hospitality LLC's ("MSH") claims are entirely without merit.

This dispute arises from PCG's lawful and good-faith exercise of its contractual call option under Section 12.4 of the Amended and Restated Operating Agreement of Palmetto Grand Ventures LLC ("PGV" or the "JV"), dated June 15, 2017 (the "Operating Agreement" or "OA"), to purchase MSH's thirty-five percent (35%) membership interest in PGV. The call option is an express, bargained-for contractual right that PCG negotiated at the inception of the joint venture and upon which it relied in structuring the transaction. MSH was fully aware of the call option when it entered into the Operating Agreement, agreed to its terms, and accepted the economic benefits of its membership interest in PGV over the course of more than five years.

PCG exercised the call option on January 9, 2023, more than six months after the fifth anniversary of the OA's effective date, which fell on June 15, 2022. The exercise was thus timely under the plain terms of Section 12.4, which permits exercise "at any time after the fifth (5th) anniversary of the Effective Date." PCG's notice of exercise was delivered in strict compliance with the notice provisions of Section 14.1 of the Operating Agreement.

As required by Section 12.4, PCG retained a qualified, independent MAI-certified appraiser — Whitfield Realty Advisors LLC, through its principal, Gerald K. Whitfield, MAI — to determine the Fair Market Value of PGV's real property and operating assets. Mr. Whitfield is a seasoned hospitality appraisal professional with over twenty-five years of experience in valuing resort and full-service hotel properties throughout the southeastern United States. He holds the MAI designation from the Appraisal Institute, which is the highest professional credential available in real property appraisal and which the Operating Agreement specifically requires. Mr. Whitfield has no prior relationship with PCG, MSH, or any of their affiliates, and he has no financial interest whatsoever in the outcome of this proceeding or the valuation of PGV.

The Whitfield appraisal, completed on February 10, 2023, concluded that the Fair Market Value of 100% of PGV's real property and operating assets as of December 31, 2022 was $118.0 million. In reaching this conclusion, Mr. Whitfield employed both an income approach — utilizing both direct capitalization and discounted cash flow analyses — and a sales-comparison approach, weighting the income approach at 40% and the sales-comparison approach at 60%. These methodologies are well-recognized, standard valuation techniques for income-producing hospitality properties.

Based on the Whitfield appraisal, PCG calculated and tendered a buyout price of $41.3 million to MSH on March 1, 2023. This amount represents the sum of (i) MSH's 35% share of net equity, calculated as $69,400,000 in net equity (i.e., $118,000,000 gross asset value less $48,600,000 in outstanding debt) multiplied by 35%, equaling $24,290,000, plus (ii) MSH's accrued and unpaid preferred return of $17,010,000, computed at the contractual rate of 8% compounding annually from August 1, 2017 through December 31, 2022. The calculation was transparent, straightforward, and derived directly from the Whitfield appraisal, the JV's audited financial records, and the terms of the Operating Agreement.

MSH rejected the tender on March 10, 2023, without identifying any specific deficiency in the Whitfield appraisal or the calculation methodology, and without availing itself of the contractual dispute resolution mechanism provided in Section 12.4(c) of the Operating Agreement. Instead, MSH filed a Demand for Arbitration with JAMS on March 20, 2023, asserting three claims: (1) bad faith under OA Section 12.7; (2) breach of fiduciary duty; and (3) breach of OA Section 8.3, relating to alleged capital expenditure and deferred maintenance obligations. MSH demands $70.0 million — a figure that is inflated by an appraisal from MSH's retained appraiser, Beacon Valuation Group Inc., which valued PGV's assets at $151.5 million (28.4% above the Whitfield appraisal), and by a purported bad-faith penalty of $16.975 million that has no basis under the Operating Agreement and no support in fact or law.

PCG respectfully submits that MSH's claims are meritless in their entirety. PCG acted in strict compliance with the Operating Agreement, retained a qualified independent appraiser as the contract requires, and tendered payment in good faith based on a well-supported independent valuation. The divergence between the Whitfield and Beacon appraisals reflects nothing more than a legitimate professional difference in valuation methodology and assumptions — precisely the type of disagreement that the Operating Agreement anticipates and for which it provides a specific contractual resolution mechanism. MSH's attempt to transform a valuation dispute into a claim for bad faith, fiduciary breach, and a windfall penalty is without legal foundation.

Through its Counterclaim, PCG seeks declaratory relief confirming that the $41.3 million buyout price constitutes the proper Fair Market Value payable to MSH under Section 12.4 of the Operating Agreement, or in the alternative, that the valuation dispute should be resolved through the third-appraiser mechanism set forth in Section 12.4(c), without any bad-faith penalty.

II. STATEMENT OF RELEVANT FACTS

A. Formation and Structure of Palmetto Grand Ventures LLC

Palmetto Grand Ventures LLC is a Florida limited liability company formed on June 15, 2017, under and pursuant to the Florida Revised Limited Liability Company Act, Chapter 605, Florida Statutes. PGV was organized for the specific purpose of acquiring, renovating, and operating The Palmetto Grand Resort & Spa (the "Hotel" or the "Property"), a luxury beachfront resort hotel located at 650 Mandalay Avenue, Clearwater Beach, Pinellas County, Florida 33767. PGV's Articles of Organization were filed with the Florida Department of State, Division of Corporations, and assigned Florida Filing Number L17000124583. PGV's federal employer identification number is 82-5063921.

The JV's capital and governance structure is set forth in the Operating Agreement, which was executed by PCG and MSH simultaneously with PGV's formation. Under the Operating Agreement, PCG holds sixty-five percent (65%) of PGV's membership interests and serves as the sole Manager of PGV, with day-to-day operational authority over all aspects of PGV's business, including the management, leasing, financing, and operation of the Property. MSH holds the remaining thirty-five percent (35%) of PGV's membership interests as a passive member. MSH's role was expressly limited from the inception of the JV; MSH does not participate in the day-to-day management of PGV but retains limited consent rights with respect to certain major decisions, including (i) capital calls exceeding $2,000,000 in any fiscal year, (ii) dispositions of all or substantially all of PGV's assets, (iii) refinancings of the senior loan facility, and (iv) the incurrence of new indebtedness in excess of $5,000,000. These consent rights are enumerated in Section 7.3 of the Operating Agreement.

The Operating Agreement is the complete and integrated agreement between the parties with respect to their respective rights and obligations as members of PGV. Section 16.1 of the Operating Agreement contains a merger clause providing that the Operating Agreement "constitutes the entire agreement of the Members with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations, and representations, whether written or oral, relating to such subject matter." The Operating Agreement is governed by Florida law, as expressly provided in Section 15.1.

B. Acquisition and Renovation of The Palmetto Grand Resort & Spa

PGV acquired The Palmetto Grand Resort & Spa on August 1, 2017, for a purchase price of $87,500,000. At the time of acquisition, the Hotel was a 312-room (including 42 suites) full-service beachfront resort located on approximately 8.7 acres of prime Gulf of Mexico frontage along Clearwater Beach, one of the most desirable leisure tourism destinations on Florida's Gulf Coast. The Hotel had been in operation since 1989 but was in need of substantial renovation and repositioning to compete effectively in the luxury segment of the Clearwater Beach and broader Tampa Bay/Gulf Coast hospitality market.

The acquisition was financed with a combination of debt and equity. Gulf Atlantic National Bank ("GANB") provided a $61,250,000 first-priority mortgage loan to PGV (Loan No. CRE-2017-06284), representing approximately 70% of the purchase price. The GANB loan bore interest at a LIBOR-based floating rate, which was subsequently converted to a SOFR-based rate of SOFR plus 2.25% in connection with the cessation of LIBOR publication in 2022. The GANB loan has a ten-year term maturing on August 1, 2027, with monthly principal and interest payments calculated on a 25-year amortization schedule. The loan is secured by a first-priority mortgage on the Property and a first-priority security interest in all of PGV's personal property, accounts, and contract rights.

The total equity contributed at acquisition, inclusive of approximately $2,307,700 in closing costs and acquisition expenses, was $28,557,700. PCG contributed $18,562,500, representing its 65% share of the required equity. MSH's agreed initial capital contribution, as set forth in Section 4.1 of the Operating Agreement, was $10,000,000, reflecting its 35% membership interest. MSH's initial capital contribution was funded in full on or before the closing of the acquisition.

Following the acquisition, from 2017 through 2019, PGV undertook a comprehensive renovation and repositioning of the Hotel at a total cost of $24,300,000. The renovation encompassed a full redesign and upgrade of all 312 guest rooms and suites, the construction of a new 8,500-square-foot spa and wellness center, the expansion and modernization of the Hotel's primary restaurant and bar facilities, the installation of new mechanical systems (including HVAC and plumbing), comprehensive landscaping and hardscaping improvements to the pool deck and beachfront amenities, the renovation of approximately 18,000 square feet of meeting and event space, and various structural and envelope improvements. The renovation was funded by additional capital contributions from both members in proportion to their respective membership interests. PCG contributed $15,795,000 (65% of $24,300,000), and MSH contributed $8,505,000 (35% of $24,300,000). Accordingly, MSH's total capital contributions to PGV over the life of the venture amount to $18,505,000 ($10,000,000 initial contribution plus $8,505,000 renovation contribution).

The Hotel operates under a franchise agreement with Aurelian Hotels & Resorts Inc. ("Aurelian"), a nationally recognized luxury hospitality brand. The franchise agreement was negotiated at arm's length and executed on July 15, 2017, with a twenty-year term expiring on July 14, 2037. Under the franchise agreement, PGV pays Aurelian franchise fees equal to 5% of gross room revenue, plus a 2% marketing fund contribution on gross room revenue, for a combined rate of 7% of gross room revenue. These terms are standard and customary in the luxury hospitality franchise segment and were the product of substantial negotiation between the parties at the time the franchise agreement was executed.

C. Hotel Operating Performance

Following the completion of the comprehensive renovation in late 2019, The Palmetto Grand Resort & Spa rapidly established itself as a premier luxury hospitality destination on the Gulf Coast. Like virtually all hospitality assets, the Hotel experienced significant disruption during the COVID-19 pandemic in 2020 and the early months of 2021. However, driven by the strong recovery of leisure travel demand in Florida and the Gulf Coast region, the Hotel experienced a robust rebound in 2021 and achieved record operating performance in 2022.

For the fiscal year ended December 31, 2022, the Hotel reported the following key operating metrics:

These results reflect the Hotel's position as a top-tier Gulf Coast luxury resort and validate the substantial capital investment made by PGV — and by both PCG and MSH — in the comprehensive renovation. The Hotel's RevPAR of $289 and ADR of $412 ranked it among the leading luxury hotels on the Florida Gulf Coast.

As of December 31, 2022, the outstanding principal balance on the GANB loan was $48,600,000, having been amortized from the original principal balance of $61,250,000 through regular monthly debt service payments over approximately five and one-half years. The loan remains current and in good standing. There are no defaults or events of default under the GANB loan documents.

D. PCG's Exercise of the Call Option

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

"At any time after the fifth (5th) anniversary of the Effective Date, the Manager shall have the right (the 'Call Option') to purchase all of the Non-Managing Member's Membership Interest in the Company at the Fair Market Value thereof, as determined by an independent MAI-certified appraiser selected and retained by the Manager. The Manager shall exercise the Call Option by delivering written notice thereof to the Non-Managing Member . . . ."

The Operating Agreement defines "Fair Market Value" in Section 1.1 as:

"the price at which the Company's assets would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts, as determined by an independent MAI-certified appraiser in accordance with Section 12.4."

On January 9, 2023 — more than six months after the fifth anniversary of the Effective Date — PCG delivered written notice to MSH exercising the Call Option. The notice was delivered in compliance with the notice provisions set forth in Section 14.1 of the Operating Agreement, via overnight courier to MSH's registered address and via electronic mail to MSH's designated representative, Anthony R. Castellano, MSH's Managing Member. The notice identified the exercise of the Call Option, cited Section 12.4, and informed MSH that PCG had retained Whitfield Realty Advisors LLC to conduct the independent appraisal required by Section 12.4.

PCG retained Whitfield Realty Advisors LLC, through its principal and senior appraiser, Gerald K. Whitfield, MAI, to conduct the independent appraisal. Whitfield Realty Advisors LLC is a respected Fort Lauderdale-based real estate appraisal and consulting firm specializing in the valuation of hospitality, resort, and mixed-use properties throughout the southeastern United States. Mr. Whitfield holds the MAI designation from the Appraisal Institute — the credential specifically required by the Operating Agreement — and has over twenty-five years of professional experience in real property valuation. Mr. Whitfield has appraised hundreds of hotel and resort properties in Florida, including numerous Gulf Coast luxury resorts. He is a licensed state-certified general real estate appraiser in the State of Florida (License No. RZ-3421). Mr. Whitfield has no prior business, personal, or financial relationship with PCG, MSH, PGV, or any of their respective affiliates, principals, or officers. He has no financial interest of any kind in the outcome of this proceeding or in the determined Fair Market Value of PGV's assets.

The Whitfield appraisal was completed on February 10, 2023, and concluded that the Fair Market Value of 100% of PGV's real property and operating assets as of December 31, 2022 was $118,000,000. In reaching this conclusion, Mr. Whitfield employed two recognized valuation approaches:

Income Approach. Mr. Whitfield applied both a direct capitalization analysis and a discounted cash flow ("DCF") analysis. The direct capitalization analysis applied a capitalization rate of 9.5% to the Hotel's stabilized net operating income. The DCF analysis projected the Hotel's cash flows over a ten-year holding period and discounted them at a rate of 10.75%, with a terminal capitalization rate of 9.75%. The two income-approach methodologies were blended to arrive at a single income-approach value indication.

Sales-Comparison Approach. Mr. Whitfield identified and analyzed seven comparable luxury hotel transactions that occurred in the Florida Gulf Coast and Southeast Florida markets between January 2020 and December 2022. After making appropriate adjustments for location, condition, size, brand affiliation, and other relevant factors, the sales-comparison approach yielded a separate value indication.

Mr. Whitfield weighted the income approach at 40% and the sales-comparison approach at 60% in arriving at his final value conclusion of $118.0 million. This weighting is consistent with standard appraisal practice for income-producing hospitality properties where reliable comparable transaction data is available, as recognized by the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice ("USPAP").

E. Calculation and Tender of Buyout Price

Based on the Whitfield appraisal, PCG calculated the buyout price payable to MSH under Section 12.4 of the Operating Agreement as follows:

The accrued preferred return of $17,010,000 was calculated in accordance with Section 5.2 of the Operating Agreement, which provides MSH with a cumulative, compounding preferred return of 8% per annum on MSH's unreturned capital contributions, accruing from the date of each contribution. As of December 31, 2022, MSH had not received any distributions from PGV in respect of its preferred return, and the full accrued amount of $17,010,000 was included in the buyout price in addition to MSH's equity share.

On March 1, 2023, PCG tendered the buyout price of $41,300,000 to MSH. The tender was accompanied by a letter from PCG's counsel at Calderwood & Harkness LLP setting forth in detail the calculation of the buyout price, enclosing a complete copy of the Whitfield appraisal report, and offering to arrange a closing within thirty (30) days. PCG confirmed its willingness to fund the entire buyout price in cash at closing. The tender was delivered in the same manner and to the same addresses as the call-option notice.

On March 10, 2023, MSH, through its counsel at Hargrove, Dunlap & Castillo LLP, rejected the tender. MSH's rejection letter did not identify any specific methodological deficiency in the Whitfield appraisal, did not assert that Mr. Whitfield was not qualified or not independent, and did not invoke the Section 12.4(c) appraisal dispute mechanism. Instead, MSH stated summarily that it "reject[ed] the tendered buyout price as grossly inadequate and reflective of bad faith."

F. MSH's Demand and Inflated Valuation

On March 20, 2023, ten days after rejecting PCG's tender, MSH filed its Demand for Arbitration with JAMS. The Demand asserts three claims: (1) bad faith in the exercise of the Call Option under OA Section 12.7; (2) breach of fiduciary duty by PCG as Manager of PGV; and (3) breach of OA Section 8.3, relating to PCG's alleged failure to properly maintain the Property and fund certain capital expenditures. MSH demands total relief of $70,000,000.

In support of its Demand, MSH subsequently retained Beacon Valuation Group Inc. ("Beacon"), through its principal, Dr. Priya Ramanathan, CFA, ASA, to conduct a competing appraisal. The Beacon appraisal was completed on April 14, 2023, and concluded that the Fair Market Value of 100% of PGV's assets as of December 31, 2022 was $151,500,000 — a figure that exceeds the Whitfield appraisal by $33,500,000, or 28.4%.

There are critical methodological differences between the Whitfield and Beacon appraisals that account for this divergence. Most significantly, the Beacon appraisal relied exclusively on an income approach, employing a discounted cash flow analysis with an 8.5% discount rate and a 7.75% terminal capitalization rate. Beacon applied no sales-comparison approach whatsoever, notwithstanding that comparable transaction data for luxury Gulf Coast hotel properties is readily available and is recognized as highly relevant to the valuation of income-producing hospitality assets. In addition, the Beacon appraisal incorporated two aggressive and improper adjustments: (i) an upward adjustment for the alleged "below-market" value of the Aurelian franchise agreement, on the theory that the Hotel's franchise fees are below current market rates for comparable brand affiliations; and (ii) an upward adjustment of $8,200,000 for purported deferred maintenance items that MSH contends PCG should have funded under its maintenance obligations in OA Section 8.3.

MSH's demanded buyout price of $70,000,000 is calculated as follows:

The gap between MSH's demand of $70,000,000 and PCG's tender of $41,300,000 is $28,700,000. This gap is driven almost entirely by two factors: (1) the $33,500,000 divergence between the Beacon and Whitfield appraisals, which itself results from Beacon's use of aggressively low discount and cap rates, its omission of a sales-comparison approach, and its inclusion of improper adjustments; and (2) the $16,975,000 "bad faith" penalty that MSH claims under OA Section 12.7, which is both factually unsupported and improperly calculated, as set forth below.

It bears emphasis that the 28.4% divergence between the Whitfield and Beacon appraisals exceeds the 10% threshold set forth in OA Section 12.4(c), which provides that if the appraisals of PCG's and MSH's respective appraisers diverge by more than 10%, a third independent appraiser shall be appointed to render a final determination. This contractual mechanism — which the parties specifically negotiated and included in the Operating Agreement — is itself powerful evidence that the Operating Agreement contemplates good-faith valuation disagreements and provides a structured process for resolving them. The existence of Section 12.4(c) demonstrates that a significant divergence in appraisals is not, standing alone, evidence of bad faith; rather, it is a foreseeable outcome that the parties agreed to address through a neutral resolution mechanism.

III. ARGUMENT

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

1. The Call Option Was Properly Triggered After the Fifth Anniversary. Section 12.4 of the Operating Agreement grants PCG the express and unconditional right to purchase MSH's entire membership interest in PGV "at any time after the fifth (5th) anniversary of the Effective Date." The Effective Date of the Operating Agreement is June 15, 2017. The fifth anniversary of the Effective Date was June 15, 2022. PCG delivered its written notice of exercise on January 9, 2023 — nearly seven months after the fifth anniversary had passed. There is no dispute that the call option was exercised within the permissible window.

The call-option notice complied with all procedural requirements of the Operating Agreement. Section 14.1 requires that notices be delivered in writing and transmitted via overnight courier to the member's registered address, with a copy via electronic mail to the member's designated representative. PCG delivered the notice via Severin Partners LLC Priority Overnight to MSH's principal office at 2100 Ponce de Leon Boulevard, Suite 950, Coral Gables, FL 33134, and via electronic mail to Anthony R. Castellano, MSH's Managing Member, and to MSH's counsel, Victoria Castillo, Esq. MSH has not contested receipt of the notice or the adequacy of its delivery.

There are no conditions precedent to the exercise of the call option other than the passage of the fifth anniversary. Section 12.4 does not require PCG to obtain MSH's consent, to provide a stated reason for the exercise, or to meet any financial or operational performance benchmarks. The call option is an absolute right, exercisable at PCG's sole discretion after the triggering date, and was a fundamental economic term of the Operating Agreement negotiated between sophisticated commercial parties, each represented by experienced counsel.

Under well-established Florida contract law, contractual options are enforceable as written, and courts will not engraft additional conditions or limitations upon a contractual right that the parties did not include in their agreement. The Florida Supreme Court has long adhered to the principle that when the terms of a contract are clear and unambiguous, the contract must be enforced as written, and neither party may rely on extrinsic evidence to vary, modify, or supplement those terms. See, e.g., Fla. Power Corp. v. City of Tallahassee, 18 So. 2d 671 (Fla. 1944); Rigney v. Rigney, 610 So. 2d 1333 (Fla. 2d DCA 1992). The Operating Agreement constitutes the complete integrated agreement between the parties, as confirmed by the merger clause in Section 16.1. MSH cannot now impose conditions or limitations on the call option that do not appear in the contractual text.

MSH has not disputed the timeliness of PCG's exercise of the call option or the procedural adequacy of the notice. Nor could it do so, as the facts are straightforward and undisputed. PCG's exercise of the call option was timely, procedurally proper, and in full compliance with the Operating Agreement.

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

• MAI Certification. Mr. Whitfield holds the MAI designation from the Appraisal Institute, the credential expressly specified in the Operating Agreement.

• Independence. Mr. Whitfield has no prior business, personal, or financial relationship with PCG, MSH, PGV, or any of their respective affiliates, principals, officers, or employees. He has no financial interest in the outcome of the arbitration, the valuation of PGV's assets, or the consummation of the buyout.

• Qualifications and Experience. Mr. Whitfield has over twenty-five years of professional appraisal experience, with a particular focus on the hospitality sector. He has appraised hundreds of hotel and resort properties in Florida and throughout the southeastern United States. He is a licensed state-certified general real estate appraiser in the State of Florida and conducts all of his appraisals in compliance with USPAP.

Critically, the Operating Agreement does not require PCG to obtain MSH's prior approval of its selected appraiser. The contractual language is clear: PCG selects the appraiser. MSH's remedy, if it disagrees with the resulting appraisal, is found in Section 12.4(c), which permits MSH to retain its own independent MAI-certified appraiser and, if the two appraisals diverge by more than 10%, provides for the appointment of a third neutral appraiser whose determination (or, more precisely, the average of the two closest appraisals) is binding on the parties. This is the remedy the Operating Agreement provides for valuation disagreements, and it is the remedy MSH should have — but did not — pursue before commencing this arbitration.

MSH has offered no credible challenge to Mr. Whitfield's qualifications, independence, or methodology. Instead, MSH seeks to bypass the contractual mechanism in Section 12.4(c) and to characterize a legitimate valuation disagreement as "bad faith." As demonstrated in Section III.C below, this characterization is without merit.

B. The Whitfield Appraisal Employed Market-Standard Methodologies and Its $118.0 Million Conclusion Is Well-Supported

1. Income Approach: The 9.5% Capitalization Rate and 10.75% discount Rate Are Within Market Norms. The Whitfield appraisal's income approach employed two standard analytical frameworks: direct capitalization and discounted cash flow. In the direct capitalization analysis, Mr. Whitfield applied a capitalization rate of 9.5% to the Hotel's stabilized net operating income. In the DCF analysis, Mr. Whitfield projected the Hotel's cash flows over a ten-year holding period and discounted them at a rate of 10.75%, with a terminal capitalization rate of 9.75%. These two income-approach methodologies were blended to arrive at a single income-approach value indication.

These rates are well within the range supported by market data for Gulf Coast luxury resort properties as of the December 31, 2022 valuation date. Publicly available hotel transaction surveys, including the Adriatic Technologies, the CBRE Hotels Cap Rate Survey, and the Stonefield Technologies database, indicate that capitalization rates for luxury full-service resort properties in the Florida Gulf Coast market ranged from approximately 8.75% to 10.25% in the second half of 2022, depending on the specific characteristics of the property, its competitive positioning, the quality of its brand affiliation, and other asset-specific factors. Mr. Whitfield's 9.5% cap rate falls squarely within the middle of this range.

Similarly, the 10.75% DCF discount rate reflects the risk profile appropriate for a full-service luxury beachfront resort, accounting for asset-specific risk factors including the concentration of the Hotel's revenue in the seasonal leisure travel segment, the inherent volatility of hospitality assets, the post-COVID recovery trajectory of the Gulf Coast tourism market, and the risk of potential natural catastrophe events (hurricanes) that periodically affect the Tampa Bay/Clearwater Beach corridor. Published surveys indicate that discount rates for similar luxury resort properties in the 2022 market ranged from approximately 10.0% to 12.0%, placing the Whitfield rate well within the accepted range.

In stark contrast, the Beacon appraisal employed a discount rate of only 8.5% and a terminal capitalization rate of only 7.75%. These rates are aggressively low and fall below the range supported by the market data described above. An 8.5% discount rate for a luxury Gulf Coast resort property is more consistent with the risk profile of a stabilized, core, urban office building in a gateway market — not a seasonal beachfront resort subject to the unique risks of the hospitality sector, including operational intensity, demand volatility, capital expenditure requirements, and weather-related disruptions. The Beacon appraisal's use of these below-market discount and terminal cap rates is a primary driver of its inflated $151.5 million conclusion. Had Beacon applied discount and terminal cap rates consistent with the Whitfield analysis and the broader market data, the Beacon conclusion would have been materially lower and far closer to the Whitfield result.

It is worth noting that even relatively modest differences in capitalization and discount rates have a significant impact on value conclusions for income-producing properties. A reduction of one percentage point in the capitalization rate (from 9.5% to 8.5%, for example) can increase the indicated value by more than 10%, all else being equal. The Beacon appraisal's selection of rates at the extreme low end of the market range — and arguably below it — thus has an outsized effect on the resulting valuation and accounts for the majority of the $33.5 million gap between the two appraisals.

2. Sales-Comparison Approach: Whitfield Properly Weighted Comparable Transactions. In addition to the income approach, the Whitfield appraisal incorporated a sales-comparison approach, which is one of the three fundamental approaches to real property valuation recognized by the Appraisal Institute and USPAP. Mr. Whitfield identified seven comparable luxury hotel transactions that occurred in the Florida Gulf Coast and Southeast Florida markets between January 2020 and December 2022. These comparable transactions involved properties of similar quality, size, location, and market positioning to The Palmetto Grand Resort & Spa. Mr. Whitfield made appropriate adjustments to each comparable sale for differences in location, condition, size, brand affiliation, date of sale, and other relevant factors, and derived a sales-comparison value indication.

The Whitfield appraisal assigned a 40% weighting to the income approach and a 60% weighting to the sales-comparison approach. This weighting is consistent with standard appraisal practice for income-producing hospitality properties in markets where reliable comparable transaction data is available. As the Appraisal Institute has noted, the sales-comparison approach provides a direct reflection of market participants' behavior and expectations, and is often considered the most reliable indicator of value when sufficient comparable data exists. For a property like The Palmetto Grand Resort & Spa, located in one of the most active and transparent luxury hotel transaction markets in the United States (the Florida Gulf Coast), the sales-comparison approach is particularly informative and appropriate.

By contrast, the Beacon appraisal relied exclusively on the income approach and applied no sales-comparison approach whatsoever. This is a significant and fundamental methodological deficiency. Dr. Ramanathan's appraisal report acknowledges the existence of comparable transaction data but states that the income approach was "most reliable" and that the sales-comparison approach was "given no weight." This single-approach methodology effectively ignores the empirical market evidence provided by actual arm's-length transactions and relies entirely on the appraiser's subjective projections of future cash flows and selection of discount and terminal cap rates. The result is a valuation that is untethered from actual market evidence and uniquely susceptible to bias — whether intentional or not — in the selection of key assumptions.

The Whitfield appraisal's dual-approach methodology provides a more reliable, balanced, and market-grounded value conclusion. By corroborating its income-approach analysis with actual sales data, the Whitfield appraisal ensures that its conclusion is tested against the behavior of real market participants making real investment decisions — the very standard that the Operating Agreement's definition of "Fair Market Value" requires.

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

"Below-Market" Franchise Agreement Adjustment. Beacon added value for what it characterizes as a "below-market" franchise agreement with Aurelian Hotels & Resorts Inc. According to the Beacon report, the Aurelian franchise agreement's combined fee of 7% of gross room revenue (5% franchise fee plus 2% marketing fund contribution) is below current market rates for comparable luxury hotel franchise affiliations, and the above-market spread represents an intangible asset with present value that should be included in the Fair Market Value of PGV's assets.

This adjustment is without foundation. The Aurelian franchise agreement was negotiated at arm's length between PGV and Aurelian on July 15, 2017, at the inception of the franchise relationship. Its terms were the product of substantial commercial negotiation. A combined franchise fee rate of 7% of gross room revenue is standard and customary in the luxury hotel franchise segment; published industry surveys report that franchise fees for luxury hotels typically range from approximately 6.5% to 9% of gross room revenue, depending on the brand, the property's size and location, and the specific terms negotiated. The Aurelian franchise agreement's 7% rate is squarely within this range and cannot credibly be characterized as "below-market."

Moreover, even if the franchise agreement's terms were somewhat favorable to PGV (which PCG does not concede), a fair market value appraisal of real property and operating assets should not attribute separate value to an in-place contractual arrangement that is inseparable from the going-concern operation of the Hotel. The franchise agreement is not being separately sold or transferred; it is an operating agreement that contributes to the Hotel's revenue and earnings, which are already captured in the income approach's cash flow projections. To add a separate "below-market" franchise premium on top of cash flows that already reflect the franchise agreement's actual terms is to double-count the benefit of the franchise relationship.

Deferred Maintenance Adjustment. The Beacon appraisal includes an upward adjustment of $8,200,000 for alleged deferred maintenance items. MSH asserts that PCG, as Manager, has failed to fund certain capital expenditures required to maintain the Property in first-class condition as required by OA Section 8.3, and that the $8.2 million in deferred maintenance items should be added to the Fair Market Value on the theory that the property should be valued as if those expenditures had been made.

This adjustment is fundamentally improper. A fair market value appraisal is required to value the property in its actual condition as of the valuation date — not in a hypothetical condition that assumes disputed capital expenditures were made. The Whitfield appraisal correctly valued the property in its actual physical condition as of December 31, 2022. If MSH believes that PCG breached its contractual obligations under Section 8.3 by failing to fund certain maintenance or capital expenditure items, MSH's remedy is a claim for damages for breach of that contractual obligation — not an artificial inflation of the Fair Market Value used to calculate the call-option buyout price. These are distinct legal claims, and MSH cannot collapse them into a single inflated valuation.

Furthermore, as discussed in Section III.D below, PCG has met its maintenance obligations, and MSH's $8.2 million deferred maintenance claim is speculative and unsupported.

C. MSH's Bad-Faith Claim Under OA Section 12.7 Is Without Merit

1. Section 12.7 Requires a Showing of Subjective Bad Faith or Intent to Materially Understate FMV. OA Section 12.7 provides:

"If the Manager exercises the Call Option under Section 12.4 in bad faith or with the intent to materially understate the Fair Market Value of the Non-Managing Member's Membership Interest, the Manager shall pay to the Non-Managing Member, in addition to the Fair Market Value determined in accordance with Section 12.4, a penalty of up to twenty-five percent (25%) of the determined Fair Market Value of the redeemed Membership Interest, as determined by the Arbitrator."

The plain language of Section 12.7 establishes a demanding standard. The provision is triggered only when the Manager exercises the call option "in bad faith or with the intent to materially understate" the Fair Market Value. This language requires a showing of subjective bad faith — that is, a dishonest purpose, a conscious intent to deprive MSH of fair value, or a deliberate scheme to manipulate the appraisal process. A mere disagreement over valuation methodology, assumptions, or conclusions — even a significant disagreement — does not satisfy this standard.

Florida courts have consistently defined "bad faith" in contractual contexts as requiring proof of dishonest purpose, moral obliquity, conscious wrongdoing, or a breach of a known duty through some ulterior motive or interest. See Cox v. CSX Intermodal, Inc., 732 So. 2d 1092, 1097 (Fla. 1st DCA 1999) (holding that "bad faith" implies "the conscious doing of a wrong because of dishonest purpose or moral obliquity"); see also Wal-Mart Stores, Inc. v. Strachan, 82 So. 3d 1052 (Fla. 4th DCA 2011). Bad faith is not established merely because a party acted in a manner that the opposing party finds disadvantageous or because the outcome of a contractual process favors one party over the other.

This heightened standard is particularly appropriate where, as here, the Operating Agreement imposes what amounts to a contractual penalty. Under Florida law, provisions that impose penalties or punitive consequences for contractual breaches are strictly construed and enforced only upon a clear showing that the conditions for their imposition have been met. See Hyman v. Cohen, 73 So. 2d 393 (Fla. 1954). Section 12.7 imposes a penalty of "up to 25%" of the redeemed interest's Fair Market Value — a potentially substantial sum — and the party seeking to invoke such a penalty bears a heightened burden of proof.

MSH has the burden of proving bad faith by clear and convincing evidence. This standard, which applies in Florida to claims seeking to impose contractual penalties or punitive sanctions, requires that the evidence be such as to produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established. See Slomowitz v. Walker, 429 So. 2d 797, 800 (Fla. 4th DCA 1983). MSH cannot meet this standard on the facts of this case.

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

Section 12.4(c) of the Operating Agreement provides a detailed mechanism for resolving appraisal divergences:

"If the Non-Managing Member disputes the Fair Market Value determined by the Manager's appraiser, the Non-Managing Member may, within thirty (30) days after receipt of the Manager's appraisal, retain a second independent MAI-certified appraiser to conduct a separate appraisal. If the two appraisals diverge by more than ten percent (10%) . . . the two appraisers shall jointly select a third independent MAI-certified appraiser, who shall conduct a third appraisal within sixty (60) days. The Fair Market Value shall be the average of the two appraisals that are closest in value."

This provision is critically important to the analysis of MSH's bad-faith claim. The very existence of Section 12.4(c) demonstrates that the drafters of the Operating Agreement — sophisticated commercial parties represented by experienced counsel — anticipated that the Manager's appraiser and the Non-Managing Member's appraiser might reach significantly different conclusions. The provision establishes a 10% threshold for triggering the third-appraiser mechanism, implicitly recognizing that valuation divergences of up to 10% (and even somewhat beyond) are a normal and expected feature of the appraisal process.

If any significant valuation divergence — let alone a divergence of 28.4% — were evidence of bad faith, Section 12.4(c) would be rendered entirely superfluous. Why would the parties negotiate a detailed three-appraiser resolution mechanism if the use of that mechanism itself constituted proof of wrongdoing? The answer, of course, is that they would not. Section 12.4(c) exists because valuation disagreements are common, foreseeable, and legitimate, and the parties agreed to resolve them through a neutral process rather than through litigation or arbitration. MSH's theory of bad faith is irreconcilable with the contractual structure that both parties agreed to at the inception of their relationship.

The 28.4% divergence between the Whitfield ($118.0 million) and Beacon ($151.5 million) appraisals, while exceeding the 10% threshold in Section 12.4(c), merely triggers the contractual right to appoint a third appraiser. It does not establish, or even suggest, that PCG acted improperly. The divergence is attributable to identifiable methodological differences — specifically, differences in discount and capitalization rates, the inclusion or omission of a sales-comparison approach, and Beacon's aggressive adjustments for the franchise agreement and deferred maintenance. These are the types of professional differences that routinely arise in appraisals of complex commercial properties and that the Operating Agreement was specifically designed to address.

PCG's reliance on a qualified, independent MAI appraiser who employed recognized methodologies and exercised his professional judgment is the opposite of bad faith. It is precisely the conduct that the Operating Agreement requires and that any reasonable commercial party would undertake in exercising a contractual call option.

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

The record affirmatively demonstrates that PCG acted transparently and in good faith throughout the call-option process:

• PCG's Managing Member, Dominic R. Pellegrino, exercised the call option after careful consideration and in consultation with PCG's advisors, including its Chief Financial Officer, Marcus Thiel, and its legal counsel at Calderwood & Harkness LLP.

• The call-option notice was delivered in strict compliance with the notice provisions of the Operating Agreement, providing MSH with clear and unambiguous notice of the exercise.

• PCG retained Mr. Whitfield promptly after delivering the exercise notice and did not restrict, limit, or direct Mr. Whitfield's analysis in any way.

• Upon completion of the Whitfield appraisal, PCG promptly shared a complete copy of the appraisal report with MSH, along with a detailed calculation of the buyout price.

• PCG tendered the full calculated buyout price of $41.3 million and confirmed its willingness to close the transaction within thirty days, offering to fund the entire amount in cash.

• At no point did PCG withhold information, refuse to cooperate, or engage in any conduct designed to impede MSH's ability to evaluate the tender or exercise its contractual rights under Section 12.4(c).

MSH's entire bad-faith theory appears to rest on the proposition that the Whitfield appraisal reached a lower conclusion than MSH's own appraiser. But this is not evidence of bad faith; it is evidence of a valuation disagreement. MSH had a contractual right to retain its own appraiser and to invoke the third-appraiser mechanism under Section 12.4(c). Instead, MSH chose to reject the tender, bypass the contractual resolution mechanism entirely, and file an arbitration demand asserting bad faith and seeking a windfall penalty. This litigation posture reflects MSH's desire to maximize its recovery beyond what the Operating Agreement provides — not any actual wrongdoing by PCG.

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

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

MSH's calculation of its penalty demand is as follows. MSH appears to have derived the $16,975,000 figure by applying a percentage to a base that includes both MSH's 35% share of net equity under the Beacon appraisal ($36,015,000) and MSH's accrued preferred return ($17,010,000), yielding a combined base of approximately $53,025,000. Applying a rate of approximately 32% to this base produces $16,975,000. This calculation is doubly flawed.

First, the accrued preferred return of $17,010,000 is not part of the "Fair Market Value of the redeemed Membership Interest." The preferred return is a contractual distribution right under Section 5.2 of the Operating Agreement that accrues regardless of the asset valuation and is an obligation of PGV to MSH that is payable independently of the call-option exercise. It has nothing to do with the Fair Market Value of PGV's assets or the value of MSH's membership interest. Including the accrued preferred return in the penalty base improperly inflates the penalty beyond what Section 12.7 authorizes.

Second, even using MSH's inflated equity calculation of $36,015,000 as the base, the maximum penalty under Section 12.7 would be 25% of that amount, or $9,003,750 — not $16,975,000. MSH's demanded penalty of $16,975,000 represents approximately 47.1% of the Beacon-derived equity share of $36,015,000, or approximately 32% of the combined equity and preferred return of $53,025,000. Either way, the figure exceeds the 25% cap expressly provided in Section 12.7.

Under the proper formula, utilizing the Whitfield appraisal's determination that MSH's 35% share of net equity is $24,290,000, the maximum penalty under Section 12.7 would be 25% of $24,290,000, or $6,072,500. Even using the Beacon appraisal's equity share of $36,015,000, the maximum penalty would be $9,003,750. In either case, MSH's demand of $16,975,000 far exceeds the contractual cap and must be rejected on its face, irrespective of whether bad faith is proven.

D. MSH's Claim for Breach of OA Section 8.3 (Deferred Maintenance) Is a Separate Claim That Does Not Inflate FMV

1. OA Section 8.3 Imposes a Maintenance Standard, Not a Valuation Adjustment. OA Section 8.3 provides, in relevant part:

"The Manager shall maintain, or cause to be maintained, the Property in first-class condition consistent with the standards of comparable luxury resort properties and in compliance with all applicable brand standards of the Franchisor."

MSH asserts that PCG breached this obligation by failing to fund approximately $8,200,000 in deferred maintenance and capital expenditure items, and that this breach should be remedied by adding $8.2 million to the Fair Market Value of PGV's assets for purposes of calculating the call-option buyout price. This theory is fundamentally flawed for two independent reasons.

First, as a matter of appraisal methodology, a fair market value appraisal should reflect the property in its actual condition as of the valuation date — not in a hypothetical condition that presupposes that disputed capital expenditures were made. This principle is a cornerstone of USPAP and the Appraisal Institute's standards. The Whitfield appraisal correctly valued the Hotel in its actual physical condition as of December 31, 2022. If the Hotel suffered from deferred maintenance as of that date (which PCG disputes), that condition would be reflected in the property's actual operating performance, its competitive positioning, and the adjustments applied in the sales-comparison approach — not through an artificial upward adjustment to the value as if the deferred maintenance had been remedied.

Second, even if PCG breached its obligations under Section 8.3, MSH's remedy for that breach is a claim for damages — not a recalculation of the Fair Market Value. A breach of the maintenance obligation in Section 8.3 and a disagreement over the Fair Market Value under Section 12.4 are distinct legal claims with distinct remedies. Section 8.3 does not state or imply that a breach of the maintenance standard entitles MSH to a hypothetical-condition valuation adjustment. It imposes a duty on the Manager, and a breach of that duty gives rise to a damages claim in the amount of the loss suffered by PGV or MSH as a result of the breach — which is not necessarily the same as the cost of the deferred items.

MSH's attempt to embed a $8.2 million breach-of-contract claim within the valuation analysis improperly conflates two separate contractual provisions and their respective remedies. The Arbitrator should treat the Section 8.3 claim, if it has merit (which PCG denies), as a separate damages claim, and should not permit MSH to inflate the Fair Market Value for buyout purposes by incorporating hypothetical remediation expenditures.

2. PCG Has Met Its Maintenance Obligations. Even considered on its own terms, MSH's Section 8.3 claim lacks factual support. PCG has fulfilled its maintenance obligations diligently and in good faith throughout its tenure as Manager of PGV.

As discussed in Section II.B above, between 2017 and 2019, PGV invested $24,300,000 in a comprehensive renovation that transformed the Property from an aging resort in need of substantial work into a premier luxury destination. That renovation addressed virtually every major building system and component, including guest rooms, suites, restaurants, spa, meeting space, pool and beach amenities, HVAC systems, plumbing, electrical, landscaping, and building envelope. Following the renovation, the Hotel has been maintained to a standard consistent with — and in many respects exceeding — the Aurelian brand standards.

Since the completion of the renovation, PCG has funded ordinary maintenance and capital expenditures consistent with the Hotel's annual operating budget, which is prepared by PGV's hotel management team in consultation with Aurelian and reviewed by PCG's asset management professionals. The Hotel has passed all Aurelian brand inspections conducted during the relevant period, including the most recent inspection conducted in October 2022. Aurelian has not issued any deficiency notices or required any remedial capital expenditures beyond those already budgeted and funded.

MSH's $8.2 million deferred maintenance claim is speculative and unsupported. MSH has not submitted with its Demand for Arbitration any independent engineering report, property condition assessment, or other third-party analysis identifying specific deferred maintenance items or estimating the cost to remedy them. Instead, the $8.2 million figure appears to be derived entirely from the Beacon appraisal, which itself does not provide a detailed, item-by-item breakdown of the purported deferred maintenance items, does not identify the source of its deferred maintenance estimate, and does not explain the methodology used to arrive at the $8.2 million figure. This type of conclusory, unsupported assertion is insufficient to establish a breach of Section 8.3, particularly given the comprehensive renovation that PGV undertook just three to five years before the valuation date.

PCG reserves the right to submit detailed evidence regarding its maintenance and capital expenditure record, including budgets, expenditure reports, Aurelian brand inspection reports, and other documentation, as this proceeding progresses. On the current record, MSH's Section 8.3 claim should be rejected.

E. PCG's Counterclaim for Declaratory Relief Should Be Granted

1. Standard for Declaratory Relief in Arbitration. Declaratory relief is an appropriate and well-recognized remedy in JAMS arbitration proceedings where the parties' rights under a contract are in genuine dispute. JAMS Comprehensive Arbitration Rules & Procedures, Rule 24(c), authorizes the Arbitrator to grant "any remedy or relief that the Arbitrator deems just and equitable and within the scope of the agreement of the parties, including, but not limited to, specific performance of a contract." Declaratory relief falls squarely within this authority. Where, as here, the parties dispute the proper interpretation and application of specific contractual provisions — namely, the fair market valuation mechanism in Section 12.4 and the bad-faith penalty provision in Section 12.7 — the Arbitrator has full authority to issue a declaration resolving those disputes.

PCG seeks a declaration by the Arbitrator that the $41,300,000 buyout price, as calculated from the Whitfield appraisal in accordance with Section 12.4 of the Operating Agreement, constitutes the proper Fair Market Value payable to MSH under the call-option provisions. This declaration would confirm that PCG has satisfied its obligation to tender payment at Fair Market Value and would allow the transaction to close in an orderly manner.

Alternatively, if the Arbitrator determines that the third-appraiser process under Section 12.4(c) should proceed — which PCG submits is the contractually appropriate mechanism for resolving the valuation dispute, if the Arbitrator does not accept the Whitfield appraisal as the final determination — PCG requests a declaration that the final Fair Market Value shall be determined in accordance with the Section 12.4(c) mechanism (i.e., the average of the two closest appraisals from among the three appraisals), without any bad-faith penalty under Section 12.7. This alternative form of relief would honor the parties' bargained-for contractual process while ensuring that MSH receives a fair price for its membership interest determined through a neutral mechanism.

Either form of declaratory relief would serve the interests of both parties and the interests of the venture by providing finality and clarity regarding the proper buyout price, allowing the transaction to close, and permitting the parties to move forward without protracted litigation.

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

JAMS ARBITRATION
JAMS Jacksonville, FL Resolution Center 1 Independent Drive, Suite 1600 Jacksonville, FL 32202
Case Reference No. 1440032871
RESPONDENT PELLEGRINO CAPITAL GROUP LLC'S MEMORANDUM OF LAW IN SUPPORT OF ITS RESPONSE TO DEMAND FOR ARBITRATION AND COUNTERCLAIM FOR DECLARATORY RELIEF
Filed: April 5, 2023
Submitted by:
CALDERWOOD & HARKNESS LLP Francesca Morano, Esq. — Responsible Partner Samuel Eklund, Esq. — Billing Partner Simone Laroche, Esq. — Lead Associate Jeffrey Park, Esq. — Working Associate 801 Brickell Avenue, Suite 2800 Miami, FL 33131 Telephone: (305) 555-7400 Facsimile: (305) 555-7401 fmorano@calderwoodharkness.com seklund@calderwoodharkness.com slaroche@calderwoodharkness.com jpark@calderwoodharkness.com
Counsel for Respondent Pellegrino Capital Group LLC 1900 Bayshore Boulevard, Suite 1400 Tampa, FL 33606
Counsel for Claimant:
Victoria Castillo, Esq. Ryan Matsuda, Esq. HARGROVE, DUNLAP & CASTILLO LLP 1395 Brickell Avenue, Suite 3100 Miami, FL 33131
TABLE OF CONTENTS
I. PRELIMINARY STATEMENT
Respondent Pellegrino Capital Group LLC ("PCG") respectfully submits this Memorandum of Law in support of its Response to the Demand for Arbitration and its Counterclaim for Declaratory Relief, both filed contemporaneously herewith. This memorandum sets forth the factual background and legal authority that support PCG's position and demonstrates that Claimant Meridian Shores Hospitality LLC's ("MSH") claims are entirely without merit.
This dispute arises from PCG's lawful and good-faith exercise of its contractual call option under Section 12.4 of the Amended and Restated Operating Agreement of Palmetto Grand Ventures LLC ("PGV" or the "JV"), dated June 15, 2017 (the "Operating Agreement" or "OA"), to purchase MSH's thirty-five percent (35%) membership interest in PGV. The call option is an express, bargained-for contractual right that PCG negotiated at the inception of the joint venture and upon which it relied in structuring the transaction. MSH was fully aware of the call option when it entered into the Operating Agreement, agreed to its terms, and accepted the economic benefits of its membership interest in PGV over the course of more than five years.
PCG exercised the call option on January 9, 2023, more than six months after the fifth anniversary of the OA's effective date, which fell on June 15, 2022. The exercise was thus timely under the plain terms of Section 12.4, which permits exercise "at any time after the fifth (5th) anniversary of the Effective Date." PCG's notice of exercise was delivered in strict compliance with the notice provisions of Section 14.1 of the Operating Agreement.
As required by Section 12.4, PCG retained a qualified, independent MAI-certified appraiser — Whitfield Realty Advisors LLC, through its principal, Gerald K. Whitfield, MAI — to determine the Fair Market Value of PGV's real property and operating assets. Mr. Whitfield is a seasoned hospitality appraisal professional with over twenty-five years of experience in valuing resort and full-service hotel properties throughout the southeastern United States. He holds the MAI designation from the Appraisal Institute, which is the highest professional credential available in real property appraisal and which the Operating Agreement specifically requires. Mr. Whitfield has no prior relationship with PCG, MSH, or any of their affiliates, and he has no financial interest whatsoever in the outcome of this proceeding or the valuation of PGV.
The Whitfield appraisal, completed on February 10, 2023, concluded that the Fair Market Value of 100% of PGV's real property and operating assets as of December 31, 2022 was $118.0 million. In reaching this conclusion, Mr. Whitfield employed both an income approach — utilizing both direct capitalization and discounted cash flow analyses — and a sales-comparison approach, weighting the income approach at 40% and the sales-comparison approach at 60%. These methodologies are well-recognized, standard valuation techniques for income-producing hospitality properties.
Based on the Whitfield appraisal, PCG calculated and tendered a buyout price of $41.3 million to MSH on March 1, 2023. This amount represents the sum of (i) MSH's 35% share of net equity, calculated as $69,400,000 in net equity (i.e., $118,000,000 gross asset value less $48,600,000 in outstanding debt) multiplied by 35%, equaling $24,290,000, plus (ii) MSH's accrued and unpaid preferred return of $17,010,000, computed at the contractual rate of 8% compounding annually from August 1, 2017 through December 31, 2022. The calculation was transparent, straightforward, and derived directly from the Whitfield appraisal, the JV's audited financial records, and the terms of the Operating Agreement.
MSH rejected the tender on March 10, 2023, without identifying any specific deficiency in the Whitfield appraisal or the calculation methodology, and without availing itself of the contractual dispute resolution mechanism provided in Section 12.4(c) of the Operating Agreement. Instead, MSH filed a Demand for Arbitration with JAMS on March 20, 2023, asserting three claims: (1) bad faith under OA Section 12.7; (2) breach of fiduciary duty; and (3) breach of OA Section 8.3, relating to alleged capital expenditure and deferred maintenance obligations. MSH demands $70.0 million — a figure that is inflated by an appraisal from MSH's retained appraiser, Beacon Valuation Group Inc., which valued PGV's assets at $151.5 million (28.4% above the Whitfield appraisal), and by a purported bad-faith penalty of $16.975 million that has no basis under the Operating Agreement and no support in fact or law.
PCG respectfully submits that MSH's claims are meritless in their entirety. PCG acted in strict compliance with the Operating Agreement, retained a qualified independent appraiser as the contract requires, and tendered payment in good faith based on a well-supported independent valuation. The divergence between the Whitfield and Beacon appraisals reflects nothing more than a legitimate professional difference in valuation methodology and assumptions — precisely the type of disagreement that the Operating Agreement anticipates and for which it provides a specific contractual resolution mechanism. MSH's attempt to transform a valuation dispute into a claim for bad faith, fiduciary breach, and a windfall penalty is without legal foundation.
Through its Counterclaim, PCG seeks declaratory relief confirming that the $41.3 million buyout price constitutes the proper Fair Market Value payable to MSH under Section 12.4 of the Operating Agreement, or in the alternative, that the valuation dispute should be resolved through the third-appraiser mechanism set forth in Section 12.4(c), without any bad-faith penalty.
II. STATEMENT OF RELEVANT FACTS
A. Formation and Structure of Palmetto Grand Ventures LLC
Palmetto Grand Ventures LLC is a Florida limited liability company formed on June 15, 2017, under and pursuant to the Florida Revised Limited Liability Company Act, Chapter 605, Florida Statutes. PGV was organized for the specific purpose of acquiring, renovating, and operating The Palmetto Grand Resort & Spa (the "Hotel" or the "Property"), a luxury beachfront resort hotel located at 650 Mandalay Avenue, Clearwater Beach, Pinellas County, Florida 33767. PGV's Articles of Organization were filed with the Florida Department of State, Division of Corporations, and assigned Florida Filing Number L17000124583. PGV's federal employer identification number is 82-5063921.
The JV's capital and governance structure is set forth in the Operating Agreement, which was executed by PCG and MSH simultaneously with PGV's formation. Under the Operating Agreement, PCG holds sixty-five percent (65%) of PGV's membership interests and serves as the sole Manager of PGV, with day-to-day operational authority over all aspects of PGV's business, including the management, leasing, financing, and operation of the Property. MSH holds the remaining thirty-five percent (35%) of PGV's membership interests as a passive member. MSH's role was expressly limited from the inception of the JV; MSH does not participate in the day-to-day management of PGV but retains limited consent rights with respect to certain major decisions, including (i) capital calls exceeding $2,000,000 in any fiscal year, (ii) dispositions of all or substantially all of PGV's assets, (iii) refinancings of the senior loan facility, and (iv) the incurrence of new indebtedness in excess of $5,000,000. These consent rights are enumerated in Section 7.3 of the Operating Agreement.
The Operating Agreement is the complete and integrated agreement between the parties with respect to their respective rights and obligations as members of PGV. Section 16.1 of the Operating Agreement contains a merger clause providing that the Operating Agreement "constitutes the entire agreement of the Members with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations, and representations, whether written or oral, relating to such subject matter." The Operating Agreement is governed by Florida law, as expressly provided in Section 15.1.
B. Acquisition and Renovation of The Palmetto Grand Resort & Spa
PGV acquired The Palmetto Grand Resort & Spa on August 1, 2017, for a purchase price of $87,500,000. At the time of acquisition, the Hotel was a 312-room (including 42 suites) full-service beachfront resort located on approximately 8.7 acres of prime Gulf of Mexico frontage along Clearwater Beach, one of the most desirable leisure tourism destinations on Florida's Gulf Coast. The Hotel had been in operation since 1989 but was in need of substantial renovation and repositioning to compete effectively in the luxury segment of the Clearwater Beach and broader Tampa Bay/Gulf Coast hospitality market.
The acquisition was financed with a combination of debt and equity. Gulf Atlantic National Bank ("GANB") provided a $61,250,000 first-priority mortgage loan to PGV (Loan No. CRE-2017-06284), representing approximately 70% of the purchase price. The GANB loan bore interest at a LIBOR-based floating rate, which was subsequently converted to a SOFR-based rate of SOFR plus 2.25% in connection with the cessation of LIBOR publication in 2022. The GANB loan has a ten-year term maturing on August 1, 2027, with monthly principal and interest payments calculated on a 25-year amortization schedule. The loan is secured by a first-priority mortgage on the Property and a first-priority security interest in all of PGV's personal property, accounts, and contract rights.
The total equity contributed at acquisition, inclusive of approximately $2,307,700 in closing costs and acquisition expenses, was $28,557,700. PCG contributed $18,562,500, representing its 65% share of the required equity. MSH's agreed initial capital contribution, as set forth in Section 4.1 of the Operating Agreement, was $10,000,000, reflecting its 35% membership interest. MSH's initial capital contribution was funded in full on or before the closing of the acquisition.
Following the acquisition, from 2017 through 2019, PGV undertook a comprehensive renovation and repositioning of the Hotel at a total cost of $24,300,000. The renovation encompassed a full redesign and upgrade of all 312 guest rooms and suites, the construction of a new 8,500-square-foot spa and wellness center, the expansion and modernization of the Hotel's primary restaurant and bar facilities, the installation of new mechanical systems (including HVAC and plumbing), comprehensive landscaping and hardscaping improvements to the pool deck and beachfront amenities, the renovation of approximately 18,000 square feet of meeting and event space, and various structural and envelope improvements. The renovation was funded by additional capital contributions from both members in proportion to their respective membership interests. PCG contributed $15,795,000 (65% of $24,300,000), and MSH contributed $8,505,000 (35% of $24,300,000). Accordingly, MSH's total capital contributions to PGV over the life of the venture amount to $18,505,000 ($10,000,000 initial contribution plus $8,505,000 renovation contribution).
The Hotel operates under a franchise agreement with Aurelian Hotels & Resorts Inc. ("Aurelian"), a nationally recognized luxury hospitality brand. The franchise agreement was negotiated at arm's length and executed on July 15, 2017, with a twenty-year term expiring on July 14, 2037. Under the franchise agreement, PGV pays Aurelian franchise fees equal to 5% of gross room revenue, plus a 2% marketing fund contribution on gross room revenue, for a combined rate of 7% of gross room revenue. These terms are standard and customary in the luxury hospitality franchise segment and were the product of substantial negotiation between the parties at the time the franchise agreement was executed.
C. Hotel Operating Performance
Following the completion of the comprehensive renovation in late 2019, The Palmetto Grand Resort & Spa rapidly established itself as a premier luxury hospitality destination on the Gulf Coast. Like virtually all hospitality assets, the Hotel experienced significant disruption during the COVID-19 pandemic in 2020 and the early months of 2021. However, driven by the strong recovery of leisure travel demand in Florida and the Gulf Coast region, the Hotel experienced a robust rebound in 2021 and achieved record operating performance in 2022.
For the fiscal year ended December 31, 2022, the Hotel reported the following key operating metrics:
These results reflect the Hotel's position as a top-tier Gulf Coast luxury resort and validate the substantial capital investment made by PGV — and by both PCG and MSH — in the comprehensive renovation. The Hotel's RevPAR of $289 and ADR of $412 ranked it among the leading luxury hotels on the Florida Gulf Coast.
As of December 31, 2022, the outstanding principal balance on the GANB loan was $48,600,000, having been amortized from the original principal balance of $61,250,000 through regular monthly debt service payments over approximately five and one-half years. The loan remains current and in good standing. There are no defaults or events of default under the GANB loan documents.
D. PCG's Exercise of the Call Option
Section 12.4 of the Operating Agreement grants PCG, in its capacity as Manager of PGV, the express and unconditional right, exercisable at any time after the fifth anniversary of the Effective Date of the Operating Agreement (i.e., at any time after June 15, 2022), to purchase all (but not less than all) of MSH's membership interest in PGV at Fair Market Value. Section 12.4 provides, in pertinent part:
"At any time after the fifth (5th) anniversary of the Effective Date, the Manager shall have the right (the 'Call Option') to purchase all of the Non-Managing Member's Membership Interest in the Company at the Fair Market Value thereof, as determined by an independent MAI-certified appraiser selected and retained by the Manager. The Manager shall exercise the Call Option by delivering written notice thereof to the Non-Managing Member . . . ."
The Operating Agreement defines "Fair Market Value" in Section 1.1 as:
"the price at which the Company's assets would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts, as determined by an independent MAI-certified appraiser in accordance with Section 12.4."
On January 9, 2023 — more than six months after the fifth anniversary of the Effective Date — PCG delivered written notice to MSH exercising the Call Option. The notice was delivered in compliance with the notice provisions set forth in Section 14.1 of the Operating Agreement, via overnight courier to MSH's registered address and via electronic mail to MSH's designated representative, Anthony R. Castellano, MSH's Managing Member. The notice identified the exercise of the Call Option, cited Section 12.4, and informed MSH that PCG had retained Whitfield Realty Advisors LLC to conduct the independent appraisal required by Section 12.4.
PCG retained Whitfield Realty Advisors LLC, through its principal and senior appraiser, Gerald K. Whitfield, MAI, to conduct the independent appraisal. Whitfield Realty Advisors LLC is a respected Fort Lauderdale-based real estate appraisal and consulting firm specializing in the valuation of hospitality, resort, and mixed-use properties throughout the southeastern United States. Mr. Whitfield holds the MAI designation from the Appraisal Institute — the credential specifically required by the Operating Agreement — and has over twenty-five years of professional experience in real property valuation. Mr. Whitfield has appraised hundreds of hotel and resort properties in Florida, including numerous Gulf Coast luxury resorts. He is a licensed state-certified general real estate appraiser in the State of Florida (License No. RZ-3421). Mr. Whitfield has no prior business, personal, or financial relationship with PCG, MSH, PGV, or any of their respective affiliates, principals, or officers. He has no financial interest of any kind in the outcome of this proceeding or in the determined Fair Market Value of PGV's assets.
The Whitfield appraisal was completed on February 10, 2023, and concluded that the Fair Market Value of 100% of PGV's real property and operating assets as of December 31, 2022 was $118,000,000. In reaching this conclusion, Mr. Whitfield employed two recognized valuation approaches:
Income Approach. Mr. Whitfield applied both a direct capitalization analysis and a discounted cash flow ("DCF") analysis. The direct capitalization analysis applied a capitalization rate of 9.5% to the Hotel's stabilized net operating income. The DCF analysis projected the Hotel's cash flows over a ten-year holding period and discounted them at a rate of 10.75%, with a terminal capitalization rate of 9.75%. The two income-approach methodologies were blended to arrive at a single income-approach value indication.
Sales-Comparison Approach. Mr. Whitfield identified and analyzed seven comparable luxury hotel transactions that occurred in the Florida Gulf Coast and Southeast Florida markets between January 2020 and December 2022. After making appropriate adjustments for location, condition, size, brand affiliation, and other relevant factors, the sales-comparison approach yielded a separate value indication.
Mr. Whitfield weighted the income approach at 40% and the sales-comparison approach at 60% in arriving at his final value conclusion of $118.0 million. This weighting is consistent with standard appraisal practice for income-producing hospitality properties where reliable comparable transaction data is available, as recognized by the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice ("USPAP").
E. Calculation and Tender of Buyout Price
Based on the Whitfield appraisal, PCG calculated the buyout price payable to MSH under Section 12.4 of the Operating Agreement as follows:
The accrued preferred return of $17,010,000 was calculated in accordance with Section 5.2 of the Operating Agreement, which provides MSH with a cumulative, compounding preferred return of 8% per annum on MSH's unreturned capital contributions, accruing from the date of each contribution. As of December 31, 2022, MSH had not received any distributions from PGV in respect of its preferred return, and the full accrued amount of $17,010,000 was included in the buyout price in addition to MSH's equity share.
On March 1, 2023, PCG tendered the buyout price of $41,300,000 to MSH. The tender was accompanied by a letter from PCG's counsel at Calderwood & Harkness LLP setting forth in detail the calculation of the buyout price, enclosing a complete copy of the Whitfield appraisal report, and offering to arrange a closing within thirty (30) days. PCG confirmed its willingness to fund the entire buyout price in cash at closing. The tender was delivered in the same manner and to the same addresses as the call-option notice.
On March 10, 2023, MSH, through its counsel at Hargrove, Dunlap & Castillo LLP, rejected the tender. MSH's rejection letter did not identify any specific methodological deficiency in the Whitfield appraisal, did not assert that Mr. Whitfield was not qualified or not independent, and did not invoke the Section 12.4(c) appraisal dispute mechanism. Instead, MSH stated summarily that it "reject[ed] the tendered buyout price as grossly inadequate and reflective of bad faith."
F. MSH's Demand and Inflated Valuation
On March 20, 2023, ten days after rejecting PCG's tender, MSH filed its Demand for Arbitration with JAMS. The Demand asserts three claims: (1) bad faith in the exercise of the Call Option under OA Section 12.7; (2) breach of fiduciary duty by PCG as Manager of PGV; and (3) breach of OA Section 8.3, relating to PCG's alleged failure to properly maintain the Property and fund certain capital expenditures. MSH demands total relief of $70,000,000.
In support of its Demand, MSH subsequently retained Beacon Valuation Group Inc. ("Beacon"), through its principal, Dr. Priya Ramanathan, CFA, ASA, to conduct a competing appraisal. The Beacon appraisal was completed on April 14, 2023, and concluded that the Fair Market Value of 100% of PGV's assets as of December 31, 2022 was $151,500,000 — a figure that exceeds the Whitfield appraisal by $33,500,000, or 28.4%.
There are critical methodological differences between the Whitfield and Beacon appraisals that account for this divergence. Most significantly, the Beacon appraisal relied exclusively on an income approach, employing a discounted cash flow analysis with an 8.5% discount rate and a 7.75% terminal capitalization rate. Beacon applied no sales-comparison approach whatsoever, notwithstanding that comparable transaction data for luxury Gulf Coast hotel properties is readily available and is recognized as highly relevant to the valuation of income-producing hospitality assets. In addition, the Beacon appraisal incorporated two aggressive and improper adjustments: (i) an upward adjustment for the alleged "below-market" value of the Aurelian franchise agreement, on the theory that the Hotel's franchise fees are below current market rates for comparable brand affiliations; and (ii) an upward adjustment of $8,200,000 for purported deferred maintenance items that MSH contends PCG should have funded under its maintenance obligations in OA Section 8.3.
MSH's demanded buyout price of $70,000,000 is calculated as follows:
The gap between MSH's demand of $70,000,000 and PCG's tender of $41,300,000 is $28,700,000. This gap is driven almost entirely by two factors: (1) the $33,500,000 divergence between the Beacon and Whitfield appraisals, which itself results from Beacon's use of aggressively low discount and cap rates, its omission of a sales-comparison approach, and its inclusion of improper adjustments; and (2) the $16,975,000 "bad faith" penalty that MSH claims under OA Section 12.7, which is both factually unsupported and improperly calculated, as set forth below.
It bears emphasis that the 28.4% divergence between the Whitfield and Beacon appraisals exceeds the 10% threshold set forth in OA Section 12.4(c), which provides that if the appraisals of PCG's and MSH's respective appraisers diverge by more than 10%, a third independent appraiser shall be appointed to render a final determination. This contractual mechanism — which the parties specifically negotiated and included in the Operating Agreement — is itself powerful evidence that the Operating Agreement contemplates good-faith valuation disagreements and provides a structured process for resolving them. The existence of Section 12.4(c) demonstrates that a significant divergence in appraisals is not, standing alone, evidence of bad faith; rather, it is a foreseeable outcome that the parties agreed to address through a neutral resolution mechanism.
III. ARGUMENT
A. PCG Exercised the Call Option in Strict Compliance with the Operating Agreement
1. The Call Option Was Properly Triggered After the Fifth Anniversary. Section 12.4 of the Operating Agreement grants PCG the express and unconditional right to purchase MSH's entire membership interest in PGV "at any time after the fifth (5th) anniversary of the Effective Date." The Effective Date of the Operating Agreement is June 15, 2017. The fifth anniversary of the Effective Date was June 15, 2022. PCG delivered its written notice of exercise on January 9, 2023 — nearly seven months after the fifth anniversary had passed. There is no dispute that the call option was exercised within the permissible window.
The call-option notice complied with all procedural requirements of the Operating Agreement. Section 14.1 requires that notices be delivered in writing and transmitted via overnight courier to the member's registered address, with a copy via electronic mail to the member's designated representative. PCG delivered the notice via Severin Partners LLC Priority Overnight to MSH's principal office at 2100 Ponce de Leon Boulevard, Suite 950, Coral Gables, FL 33134, and via electronic mail to Anthony R. Castellano, MSH's Managing Member, and to MSH's counsel, Victoria Castillo, Esq. MSH has not contested receipt of the notice or the adequacy of its delivery.
There are no conditions precedent to the exercise of the call option other than the passage of the fifth anniversary. Section 12.4 does not require PCG to obtain MSH's consent, to provide a stated reason for the exercise, or to meet any financial or operational performance benchmarks. The call option is an absolute right, exercisable at PCG's sole discretion after the triggering date, and was a fundamental economic term of the Operating Agreement negotiated between sophisticated commercial parties, each represented by experienced counsel.
Under well-established Florida contract law, contractual options are enforceable as written, and courts will not engraft additional conditions or limitations upon a contractual right that the parties did not include in their agreement. The Florida Supreme Court has long adhered to the principle that when the terms of a contract are clear and unambiguous, the contract must be enforced as written, and neither party may rely on extrinsic evidence to vary, modify, or supplement those terms. See, e.g., Fla. Power Corp. v. City of Tallahassee, 18 So. 2d 671 (Fla. 1944); Rigney v. Rigney, 610 So. 2d 1333 (Fla. 2d DCA 1992). The Operating Agreement constitutes the complete integrated agreement between the parties, as confirmed by the merger clause in Section 16.1. MSH cannot now impose conditions or limitations on the call option that do not appear in the contractual text.
MSH has not disputed the timeliness of PCG's exercise of the call option or the procedural adequacy of the notice. Nor could it do so, as the facts are straightforward and undisputed. PCG's exercise of the call option was timely, procedurally proper, and in full compliance with the Operating Agreement.
2. PCG Selected a Qualified Independent Appraiser as Required. Section 12.4 requires PCG, upon exercising the call option, to retain "an independent MAI-certified appraiser" to determine the Fair Market Value of PGV's assets. PCG retained Whitfield Realty Advisors LLC, through its principal, Gerald K. Whitfield, MAI. As detailed in Section II.D above, Mr. Whitfield satisfies every requirement of Section 12.4:
• MAI Certification. Mr. Whitfield holds the MAI designation from the Appraisal Institute, the credential expressly specified in the Operating Agreement.
• Independence. Mr. Whitfield has no prior business, personal, or financial relationship with PCG, MSH, PGV, or any of their respective affiliates, principals, officers, or employees. He has no financial interest in the outcome of the arbitration, the valuation of PGV's assets, or the consummation of the buyout.
• Qualifications and Experience. Mr. Whitfield has over twenty-five years of professional appraisal experience, with a particular focus on the hospitality sector. He has appraised hundreds of hotel and resort properties in Florida and throughout the southeastern United States. He is a licensed state-certified general real estate appraiser in the State of Florida and conducts all of his appraisals in compliance with USPAP.
Critically, the Operating Agreement does not require PCG to obtain MSH's prior approval of its selected appraiser. The contractual language is clear: PCG selects the appraiser. MSH's remedy, if it disagrees with the resulting appraisal, is found in Section 12.4(c), which permits MSH to retain its own independent MAI-certified appraiser and, if the two appraisals diverge by more than 10%, provides for the appointment of a third neutral appraiser whose determination (or, more precisely, the average of the two closest appraisals) is binding on the parties. This is the remedy the Operating Agreement provides for valuation disagreements, and it is the remedy MSH should have — but did not — pursue before commencing this arbitration.
MSH has offered no credible challenge to Mr. Whitfield's qualifications, independence, or methodology. Instead, MSH seeks to bypass the contractual mechanism in Section 12.4(c) and to characterize a legitimate valuation disagreement as "bad faith." As demonstrated in Section III.C below, this characterization is without merit.
B. The Whitfield Appraisal Employed Market-Standard Methodologies and Its $118.0 Million Conclusion Is Well-Supported
1. Income Approach: The 9.5% Capitalization Rate and 10.75% discount Rate Are Within Market Norms. The Whitfield appraisal's income approach employed two standard analytical frameworks: direct capitalization and discounted cash flow. In the direct capitalization analysis, Mr. Whitfield applied a capitalization rate of 9.5% to the Hotel's stabilized net operating income. In the DCF analysis, Mr. Whitfield projected the Hotel's cash flows over a ten-year holding period and discounted them at a rate of 10.75%, with a terminal capitalization rate of 9.75%. These two income-approach methodologies were blended to arrive at a single income-approach value indication.
These rates are well within the range supported by market data for Gulf Coast luxury resort properties as of the December 31, 2022 valuation date. Publicly available hotel transaction surveys, including the Adriatic Technologies, the CBRE Hotels Cap Rate Survey, and the Stonefield Technologies database, indicate that capitalization rates for luxury full-service resort properties in the Florida Gulf Coast market ranged from approximately 8.75% to 10.25% in the second half of 2022, depending on the specific characteristics of the property, its competitive positioning, the quality of its brand affiliation, and other asset-specific factors. Mr. Whitfield's 9.5% cap rate falls squarely within the middle of this range.
Similarly, the 10.75% DCF discount rate reflects the risk profile appropriate for a full-service luxury beachfront resort, accounting for asset-specific risk factors including the concentration of the Hotel's revenue in the seasonal leisure travel segment, the inherent volatility of hospitality assets, the post-COVID recovery trajectory of the Gulf Coast tourism market, and the risk of potential natural catastrophe events (hurricanes) that periodically affect the Tampa Bay/Clearwater Beach corridor. Published surveys indicate that discount rates for similar luxury resort properties in the 2022 market ranged from approximately 10.0% to 12.0%, placing the Whitfield rate well within the accepted range.
In stark contrast, the Beacon appraisal employed a discount rate of only 8.5% and a terminal capitalization rate of only 7.75%. These rates are aggressively low and fall below the range supported by the market data described above. An 8.5% discount rate for a luxury Gulf Coast resort property is more consistent with the risk profile of a stabilized, core, urban office building in a gateway market — not a seasonal beachfront resort subject to the unique risks of the hospitality sector, including operational intensity, demand volatility, capital expenditure requirements, and weather-related disruptions. The Beacon appraisal's use of these below-market discount and terminal cap rates is a primary driver of its inflated $151.5 million conclusion. Had Beacon applied discount and terminal cap rates consistent with the Whitfield analysis and the broader market data, the Beacon conclusion would have been materially lower and far closer to the Whitfield result.
It is worth noting that even relatively modest differences in capitalization and discount rates have a significant impact on value conclusions for income-producing properties. A reduction of one percentage point in the capitalization rate (from 9.5% to 8.5%, for example) can increase the indicated value by more than 10%, all else being equal. The Beacon appraisal's selection of rates at the extreme low end of the market range — and arguably below it — thus has an outsized effect on the resulting valuation and accounts for the majority of the $33.5 million gap between the two appraisals.
2. Sales-Comparison Approach: Whitfield Properly Weighted Comparable Transactions. In addition to the income approach, the Whitfield appraisal incorporated a sales-comparison approach, which is one of the three fundamental approaches to real property valuation recognized by the Appraisal Institute and USPAP. Mr. Whitfield identified seven comparable luxury hotel transactions that occurred in the Florida Gulf Coast and Southeast Florida markets between January 2020 and December 2022. These comparable transactions involved properties of similar quality, size, location, and market positioning to The Palmetto Grand Resort & Spa. Mr. Whitfield made appropriate adjustments to each comparable sale for differences in location, condition, size, brand affiliation, date of sale, and other relevant factors, and derived a sales-comparison value indication.
The Whitfield appraisal assigned a 40% weighting to the income approach and a 60% weighting to the sales-comparison approach. This weighting is consistent with standard appraisal practice for income-producing hospitality properties in markets where reliable comparable transaction data is available. As the Appraisal Institute has noted, the sales-comparison approach provides a direct reflection of market participants' behavior and expectations, and is often considered the most reliable indicator of value when sufficient comparable data exists. For a property like The Palmetto Grand Resort & Spa, located in one of the most active and transparent luxury hotel transaction markets in the United States (the Florida Gulf Coast), the sales-comparison approach is particularly informative and appropriate.
By contrast, the Beacon appraisal relied exclusively on the income approach and applied no sales-comparison approach whatsoever. This is a significant and fundamental methodological deficiency. Dr. Ramanathan's appraisal report acknowledges the existence of comparable transaction data but states that the income approach was "most reliable" and that the sales-comparison approach was "given no weight." This single-approach methodology effectively ignores the empirical market evidence provided by actual arm's-length transactions and relies entirely on the appraiser's subjective projections of future cash flows and selection of discount and terminal cap rates. The result is a valuation that is untethered from actual market evidence and uniquely susceptible to bias — whether intentional or not — in the selection of key assumptions.
The Whitfield appraisal's dual-approach methodology provides a more reliable, balanced, and market-grounded value conclusion. By corroborating its income-approach analysis with actual sales data, the Whitfield appraisal ensures that its conclusion is tested against the behavior of real market participants making real investment decisions — the very standard that the Operating Agreement's definition of "Fair Market Value" requires.
3. Beacon's Adjustments for "Below-Market" Franchise Agreement and Deferred Maintenance Are Improper. In addition to its low discount and cap rates and its omission of a sales-comparison approach, the Beacon appraisal includes two specific upward adjustments that further inflate its value conclusion. Both adjustments are improper and unsupported.
"Below-Market" Franchise Agreement Adjustment. Beacon added value for what it characterizes as a "below-market" franchise agreement with Aurelian Hotels & Resorts Inc. According to the Beacon report, the Aurelian franchise agreement's combined fee of 7% of gross room revenue (5% franchise fee plus 2% marketing fund contribution) is below current market rates for comparable luxury hotel franchise affiliations, and the above-market spread represents an intangible asset with present value that should be included in the Fair Market Value of PGV's assets.
This adjustment is without foundation. The Aurelian franchise agreement was negotiated at arm's length between PGV and Aurelian on July 15, 2017, at the inception of the franchise relationship. Its terms were the product of substantial commercial negotiation. A combined franchise fee rate of 7% of gross room revenue is standard and customary in the luxury hotel franchise segment; published industry surveys report that franchise fees for luxury hotels typically range from approximately 6.5% to 9% of gross room revenue, depending on the brand, the property's size and location, and the specific terms negotiated. The Aurelian franchise agreement's 7% rate is squarely within this range and cannot credibly be characterized as "below-market."
Moreover, even if the franchise agreement's terms were somewhat favorable to PGV (which PCG does not concede), a fair market value appraisal of real property and operating assets should not attribute separate value to an in-place contractual arrangement that is inseparable from the going-concern operation of the Hotel. The franchise agreement is not being separately sold or transferred; it is an operating agreement that contributes to the Hotel's revenue and earnings, which are already captured in the income approach's cash flow projections. To add a separate "below-market" franchise premium on top of cash flows that already reflect the franchise agreement's actual terms is to double-count the benefit of the franchise relationship.
Deferred Maintenance Adjustment. The Beacon appraisal includes an upward adjustment of $8,200,000 for alleged deferred maintenance items. MSH asserts that PCG, as Manager, has failed to fund certain capital expenditures required to maintain the Property in first-class condition as required by OA Section 8.3, and that the $8.2 million in deferred maintenance items should be added to the Fair Market Value on the theory that the property should be valued as if those expenditures had been made.
This adjustment is fundamentally improper. A fair market value appraisal is required to value the property in its actual condition as of the valuation date — not in a hypothetical condition that assumes disputed capital expenditures were made. The Whitfield appraisal correctly valued the property in its actual physical condition as of December 31, 2022. If MSH believes that PCG breached its contractual obligations under Section 8.3 by failing to fund certain maintenance or capital expenditure items, MSH's remedy is a claim for damages for breach of that contractual obligation — not an artificial inflation of the Fair Market Value used to calculate the call-option buyout price. These are distinct legal claims, and MSH cannot collapse them into a single inflated valuation.
Furthermore, as discussed in Section III.D below, PCG has met its maintenance obligations, and MSH's $8.2 million deferred maintenance claim is speculative and unsupported.
C. MSH's Bad-Faith Claim Under OA Section 12.7 Is Without Merit
1. Section 12.7 Requires a Showing of Subjective Bad Faith or Intent to Materially Understate FMV. OA Section 12.7 provides:
"If the Manager exercises the Call Option under Section 12.4 in bad faith or with the intent to materially understate the Fair Market Value of the Non-Managing Member's Membership Interest, the Manager shall pay to the Non-Managing Member, in addition to the Fair Market Value determined in accordance with Section 12.4, a penalty of up to twenty-five percent (25%) of the determined Fair Market Value of the redeemed Membership Interest, as determined by the Arbitrator."
The plain language of Section 12.7 establishes a demanding standard. The provision is triggered only when the Manager exercises the call option "in bad faith or with the intent to materially understate" the Fair Market Value. This language requires a showing of subjective bad faith — that is, a dishonest purpose, a conscious intent to deprive MSH of fair value, or a deliberate scheme to manipulate the appraisal process. A mere disagreement over valuation methodology, assumptions, or conclusions — even a significant disagreement — does not satisfy this standard.
Florida courts have consistently defined "bad faith" in contractual contexts as requiring proof of dishonest purpose, moral obliquity, conscious wrongdoing, or a breach of a known duty through some ulterior motive or interest. See Cox v. CSX Intermodal, Inc., 732 So. 2d 1092, 1097 (Fla. 1st DCA 1999) (holding that "bad faith" implies "the conscious doing of a wrong because of dishonest purpose or moral obliquity"); see also Wal-Mart Stores, Inc. v. Strachan, 82 So. 3d 1052 (Fla. 4th DCA 2011). Bad faith is not established merely because a party acted in a manner that the opposing party finds disadvantageous or because the outcome of a contractual process favors one party over the other.
This heightened standard is particularly appropriate where, as here, the Operating Agreement imposes what amounts to a contractual penalty. Under Florida law, provisions that impose penalties or punitive consequences for contractual breaches are strictly construed and enforced only upon a clear showing that the conditions for their imposition have been met. See Hyman v. Cohen, 73 So. 2d 393 (Fla. 1954). Section 12.7 imposes a penalty of "up to 25%" of the redeemed interest's Fair Market Value — a potentially substantial sum — and the party seeking to invoke such a penalty bears a heightened burden of proof.
MSH has the burden of proving bad faith by clear and convincing evidence. This standard, which applies in Florida to claims seeking to impose contractual penalties or punitive sanctions, requires that the evidence be such as to produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established. See Slomowitz v. Walker, 429 So. 2d 797, 800 (Fla. 4th DCA 1983). MSH cannot meet this standard on the facts of this case.
2. A Good-Faith Difference in Valuation Methodology Does Not Constitute Bad Faith. The central flaw in MSH's bad-faith claim is its conflation of a valuation disagreement with evidence of dishonest purpose. PCG retained an independent, MAI-certified appraiser who applied recognized valuation methodologies and arrived at a professional opinion of value. MSH retained its own appraiser who applied different methodologies and assumptions and arrived at a different opinion. This is precisely the type of dispute that the Operating Agreement contemplates.
Section 12.4(c) of the Operating Agreement provides a detailed mechanism for resolving appraisal divergences:
"If the Non-Managing Member disputes the Fair Market Value determined by the Manager's appraiser, the Non-Managing Member may, within thirty (30) days after receipt of the Manager's appraisal, retain a second independent MAI-certified appraiser to conduct a separate appraisal. If the two appraisals diverge by more than ten percent (10%) . . . the two appraisers shall jointly select a third independent MAI-certified appraiser, who shall conduct a third appraisal within sixty (60) days. The Fair Market Value shall be the average of the two appraisals that are closest in value."
This provision is critically important to the analysis of MSH's bad-faith claim. The very existence of Section 12.4(c) demonstrates that the drafters of the Operating Agreement — sophisticated commercial parties represented by experienced counsel — anticipated that the Manager's appraiser and the Non-Managing Member's appraiser might reach significantly different conclusions. The provision establishes a 10% threshold for triggering the third-appraiser mechanism, implicitly recognizing that valuation divergences of up to 10% (and even somewhat beyond) are a normal and expected feature of the appraisal process.
If any significant valuation divergence — let alone a divergence of 28.4% — were evidence of bad faith, Section 12.4(c) would be rendered entirely superfluous. Why would the parties negotiate a detailed three-appraiser resolution mechanism if the use of that mechanism itself constituted proof of wrongdoing? The answer, of course, is that they would not. Section 12.4(c) exists because valuation disagreements are common, foreseeable, and legitimate, and the parties agreed to resolve them through a neutral process rather than through litigation or arbitration. MSH's theory of bad faith is irreconcilable with the contractual structure that both parties agreed to at the inception of their relationship.
The 28.4% divergence between the Whitfield ($118.0 million) and Beacon ($151.5 million) appraisals, while exceeding the 10% threshold in Section 12.4(c), merely triggers the contractual right to appoint a third appraiser. It does not establish, or even suggest, that PCG acted improperly. The divergence is attributable to identifiable methodological differences — specifically, differences in discount and capitalization rates, the inclusion or omission of a sales-comparison approach, and Beacon's aggressive adjustments for the franchise agreement and deferred maintenance. These are the types of professional differences that routinely arise in appraisals of complex commercial properties and that the Operating Agreement was specifically designed to address.
PCG's reliance on a qualified, independent MAI appraiser who employed recognized methodologies and exercised his professional judgment is the opposite of bad faith. It is precisely the conduct that the Operating Agreement requires and that any reasonable commercial party would undertake in exercising a contractual call option.
3. MSH Cannot Meet Its Burden of Proof on Bad Faith. Beyond the legal standards discussed above, MSH simply has no evidence to support a claim of bad faith. MSH has not identified — and cannot identify — any facts suggesting that PCG instructed, influenced, pressured, or manipulated Mr. Whitfield or the Whitfield appraisal in any way. Mr. Whitfield is an independent professional who was engaged to render his own professional opinion of value and who did so in the exercise of his own professional judgment.
The record affirmatively demonstrates that PCG acted transparently and in good faith throughout the call-option process:
• PCG's Managing Member, Dominic R. Pellegrino, exercised the call option after careful consideration and in consultation with PCG's advisors, including its Chief Financial Officer, Marcus Thiel, and its legal counsel at Calderwood & Harkness LLP.
• The call-option notice was delivered in strict compliance with the notice provisions of the Operating Agreement, providing MSH with clear and unambiguous notice of the exercise.
• PCG retained Mr. Whitfield promptly after delivering the exercise notice and did not restrict, limit, or direct Mr. Whitfield's analysis in any way.
• Upon completion of the Whitfield appraisal, PCG promptly shared a complete copy of the appraisal report with MSH, along with a detailed calculation of the buyout price.
• PCG tendered the full calculated buyout price of $41.3 million and confirmed its willingness to close the transaction within thirty days, offering to fund the entire amount in cash.
• At no point did PCG withhold information, refuse to cooperate, or engage in any conduct designed to impede MSH's ability to evaluate the tender or exercise its contractual rights under Section 12.4(c).
MSH's entire bad-faith theory appears to rest on the proposition that the Whitfield appraisal reached a lower conclusion than MSH's own appraiser. But this is not evidence of bad faith; it is evidence of a valuation disagreement. MSH had a contractual right to retain its own appraiser and to invoke the third-appraiser mechanism under Section 12.4(c). Instead, MSH chose to reject the tender, bypass the contractual resolution mechanism entirely, and file an arbitration demand asserting bad faith and seeking a windfall penalty. This litigation posture reflects MSH's desire to maximize its recovery beyond what the Operating Agreement provides — not any actual wrongdoing by PCG.
4. MSH's $16.975 Million Penalty Demand Is Improperly Calculated. Even if bad faith were established — which, as demonstrated above, it cannot be — MSH's claimed penalty of $16,975,000 has no basis under the plain language of Section 12.7 and is improperly calculated.
Section 12.7 provides for a penalty of "up to twenty-five percent (25%) of the determined Fair Market Value of the redeemed Membership Interest." The operative base for the penalty calculation is the "determined Fair Market Value of the redeemed Membership Interest" — that is, the value of MSH's 35% interest as determined through the appraisal process, not a figure that includes MSH's accrued preferred return or any other contractual obligation.
MSH's calculation of its penalty demand is as follows. MSH appears to have derived the $16,975,000 figure by applying a percentage to a base that includes both MSH's 35% share of net equity under the Beacon appraisal ($36,015,000) and MSH's accrued preferred return ($17,010,000), yielding a combined base of approximately $53,025,000. Applying a rate of approximately 32% to this base produces $16,975,000. This calculation is doubly flawed.
First, the accrued preferred return of $17,010,000 is not part of the "Fair Market Value of the redeemed Membership Interest." The preferred return is a contractual distribution right under Section 5.2 of the Operating Agreement that accrues regardless of the asset valuation and is an obligation of PGV to MSH that is payable independently of the call-option exercise. It has nothing to do with the Fair Market Value of PGV's assets or the value of MSH's membership interest. Including the accrued preferred return in the penalty base improperly inflates the penalty beyond what Section 12.7 authorizes.
Second, even using MSH's inflated equity calculation of $36,015,000 as the base, the maximum penalty under Section 12.7 would be 25% of that amount, or $9,003,750 — not $16,975,000. MSH's demanded penalty of $16,975,000 represents approximately 47.1% of the Beacon-derived equity share of $36,015,000, or approximately 32% of the combined equity and preferred return of $53,025,000. Either way, the figure exceeds the 25% cap expressly provided in Section 12.7.
Under the proper formula, utilizing the Whitfield appraisal's determination that MSH's 35% share of net equity is $24,290,000, the maximum penalty under Section 12.7 would be 25% of $24,290,000, or $6,072,500. Even using the Beacon appraisal's equity share of $36,015,000, the maximum penalty would be $9,003,750. In either case, MSH's demand of $16,975,000 far exceeds the contractual cap and must be rejected on its face, irrespective of whether bad faith is proven.
D. MSH's Claim for Breach of OA Section 8.3 (Deferred Maintenance) Is a Separate Claim That Does Not Inflate FMV
1. OA Section 8.3 Imposes a Maintenance Standard, Not a Valuation Adjustment. OA Section 8.3 provides, in relevant part:
"The Manager shall maintain, or cause to be maintained, the Property in first-class condition consistent with the standards of comparable luxury resort properties and in compliance with all applicable brand standards of the Franchisor."
MSH asserts that PCG breached this obligation by failing to fund approximately $8,200,000 in deferred maintenance and capital expenditure items, and that this breach should be remedied by adding $8.2 million to the Fair Market Value of PGV's assets for purposes of calculating the call-option buyout price. This theory is fundamentally flawed for two independent reasons.
First, as a matter of appraisal methodology, a fair market value appraisal should reflect the property in its actual condition as of the valuation date — not in a hypothetical condition that presupposes that disputed capital expenditures were made. This principle is a cornerstone of USPAP and the Appraisal Institute's standards. The Whitfield appraisal correctly valued the Hotel in its actual physical condition as of December 31, 2022. If the Hotel suffered from deferred maintenance as of that date (which PCG disputes), that condition would be reflected in the property's actual operating performance, its competitive positioning, and the adjustments applied in the sales-comparison approach — not through an artificial upward adjustment to the value as if the deferred maintenance had been remedied.
Second, even if PCG breached its obligations under Section 8.3, MSH's remedy for that breach is a claim for damages — not a recalculation of the Fair Market Value. A breach of the maintenance obligation in Section 8.3 and a disagreement over the Fair Market Value under Section 12.4 are distinct legal claims with distinct remedies. Section 8.3 does not state or imply that a breach of the maintenance standard entitles MSH to a hypothetical-condition valuation adjustment. It imposes a duty on the Manager, and a breach of that duty gives rise to a damages claim in the amount of the loss suffered by PGV or MSH as a result of the breach — which is not necessarily the same as the cost of the deferred items.
MSH's attempt to embed a $8.2 million breach-of-contract claim within the valuation analysis improperly conflates two separate contractual provisions and their respective remedies. The Arbitrator should treat the Section 8.3 claim, if it has merit (which PCG denies), as a separate damages claim, and should not permit MSH to inflate the Fair Market Value for buyout purposes by incorporating hypothetical remediation expenditures.
2. PCG Has Met Its Maintenance Obligations. Even considered on its own terms, MSH's Section 8.3 claim lacks factual support. PCG has fulfilled its maintenance obligations diligently and in good faith throughout its tenure as Manager of PGV.
As discussed in Section II.B above, between 2017 and 2019, PGV invested $24,300,000 in a comprehensive renovation that transformed the Property from an aging resort in need of substantial work into a premier luxury destination. That renovation addressed virtually every major building system and component, including guest rooms, suites, restaurants, spa, meeting space, pool and beach amenities, HVAC systems, plumbing, electrical, landscaping, and building envelope. Following the renovation, the Hotel has been maintained to a standard consistent with — and in many respects exceeding — the Aurelian brand standards.
Since the completion of the renovation, PCG has funded ordinary maintenance and capital expenditures consistent with the Hotel's annual operating budget, which is prepared by PGV's hotel management team in consultation with Aurelian and reviewed by PCG's asset management professionals. The Hotel has passed all Aurelian brand inspections conducted during the relevant period, including the most recent inspection conducted in October 2022. Aurelian has not issued any deficiency notices or required any remedial capital expenditures beyond those already budgeted and funded.
MSH's $8.2 million deferred maintenance claim is speculative and unsupported. MSH has not submitted with its Demand for Arbitration any independent engineering report, property condition assessment, or other third-party analysis identifying specific deferred maintenance items or estimating the cost to remedy them. Instead, the $8.2 million figure appears to be derived entirely from the Beacon appraisal, which itself does not provide a detailed, item-by-item breakdown of the purported deferred maintenance items, does not identify the source of its deferred maintenance estimate, and does not explain the methodology used to arrive at the $8.2 million figure. This type of conclusory, unsupported assertion is insufficient to establish a breach of Section 8.3, particularly given the comprehensive renovation that PGV undertook just three to five years before the valuation date.
PCG reserves the right to submit detailed evidence regarding its maintenance and capital expenditure record, including budgets, expenditure reports, Aurelian brand inspection reports, and other documentation, as this proceeding progresses. On the current record, MSH's Section 8.3 claim should be rejected.
E. PCG's Counterclaim for Declaratory Relief Should Be Granted
1. Standard for Declaratory Relief in Arbitration. Declaratory relief is an appropriate and well-recognized remedy in JAMS arbitration proceedings where the parties' rights under a contract are in genuine dispute. JAMS Comprehensive Arbitration Rules & Procedures, Rule 24(c), authorizes the Arbitrator to grant "any remedy or relief that the Arbitrator deems just and equitable and within the scope of the agreement of the parties, including, but not limited to, specific performance of a contract." Declaratory relief falls squarely within this authority. Where, as here, the parties dispute the proper interpretation and application of specific contractual provisions — namely, the fair market valuation mechanism in Section 12.4 and the bad-faith penalty provision in Section 12.7 — the Arbitrator has full authority to issue a declaration resolving those disputes.
PCG seeks a declaration by the Arbitrator that the $41,300,000 buyout price, as calculated from the Whitfield appraisal in accordance with Section 12.4 of the Operating Agreement, constitutes the proper Fair Market Value payable to MSH under the call-option provisions. This declaration would confirm that PCG has satisfied its obligation to tender payment at Fair Market Value and would allow the transaction to close in an orderly manner.
Alternatively, if the Arbitrator determines that the third-appraiser process under Section 12.4(c) should proceed — which PCG submits is the contractually appropriate mechanism for resolving the valuation dispute, if the Arbitrator does not accept the Whitfield appraisal as the final determination — PCG requests a declaration that the final Fair Market Value shall be determined in accordance with the Section 12.4(c) mechanism (i.e., the average of the two closest appraisals from among the three appraisals), without any bad-faith penalty under Section 12.7. This alternative form of relief would honor the parties' bargained-for contractual process while ensuring that MSH receives a fair price for its membership interest determined through a neutral mechanism.
Either form of declaratory relief would serve the interests of both parties and the interests of the venture by providing finality and clarity regarding the proper buyout price, allowing the transaction to close, and permitting the parties to move forward without protracted litigation.
2. No Bad-Faith Penalty Should Be Applied. For the reasons detailed at length in Section III.C above, Section 12.7 is inapplicable to this transaction and no penalt

JAMS ARBITRATION

TABLE OF CONTENTS

I. PRELIMINARY STATEMENT

II. STATEMENT OF RELEVANT FACTS

III. ARGUMENT

Record

Parties

Dates

Amounts