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JAMS ARBITRATION

Jacksonville Resolution Center Jacksonville, Florida

JAMS Ref. No. 1440032871

Before the Honorable Margaret Liu Chen (Ret.) Arbitrator

Preliminary Conference Scheduled: May 15, 2023

Filed: May 12, 2023

Prepared by:

CALDERWOOD & HARKNESS LLP 801 Brickell Avenue, Suite 2800 Miami, Florida 33131

Francesca Morano, Partner (Responsible Partner) Samuel Eklund, Partner (Billing Partner) Simone Laroche, Associate (Lead Associate) Jeffrey Park, Associate (Working Associate)

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

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I. INTRODUCTION

Respondent Pellegrino Capital Group LLC ("PCG" or "Respondent") respectfully submits this Preliminary Conference Statement in advance of the preliminary conference scheduled before the Honorable Margaret Liu Chen (Ret.) for May 15, 2023. This statement is submitted in accordance with the JAMS Comprehensive Arbitration Rules & Procedures and is intended to assist the Arbitrator in organizing these proceedings in an efficient and orderly manner.

This dispute arises out of the redemption of a minority membership interest in a Florida limited liability company that owns and operates a luxury beachfront hotel on Florida's Gulf Coast. Claimant Meridian Shores Hospitality LLC ("MSH" or "Claimant") filed its Demand for Arbitration on March 20, 2023, challenging the buyout valuation of its thirty-five percent (35%) membership interest in Palmetto Grand Ventures LLC ("PGV"), a Florida limited liability company formed on June 15, 2017. MSH contends that the redemption price offered by PCG materially understates the Fair Market Value of the venture and its assets, and further asserts claims for bad-faith valuation and breach of the Operating Agreement's maintenance obligations.

PCG filed its Response and Counterclaim on April 5, 2023, denying MSH's allegations in their entirety and affirmatively seeking declaratory relief that the redemption price of $41.3 million tendered by PCG on March 1, 2023 constitutes the proper Fair Market Value of MSH's membership interest, as calculated in accordance with Section 12.4 of the Operating Agreement of Palmetto Grand Ventures LLC, dated June 15, 2017 (the "Operating Agreement" or "OA"). PCG's tendered price was derived from an independent appraisal conducted by a qualified MAI-certified appraiser and reflects the contractually prescribed methodology for computing the buyout price owed to a departing member.

The parties' dispute resolution obligations are governed by Section 15.2 of the Operating Agreement, which mandates binding arbitration under the JAMS Comprehensive Arbitration Rules & Procedures, seated in Jacksonville, Florida, and governed by the substantive laws of the State of Florida, including the Florida Revised Limited Liability Company Act, Chapter 605, Florida Statutes. There is no dispute between the parties regarding the Arbitrator's jurisdiction over the claims and counterclaims presented in this proceeding.

PCG submits this Preliminary Conference Statement to provide the Arbitrator with a concise overview of the dispute, to identify the issues that PCG believes must be resolved, and to propose a procedural framework that will promote the efficient and fair resolution of this matter. PCG is committed to participating in these proceedings in good faith and looks forward to a productive preliminary conference on May 15, 2023.

II. SUMMARY OF THE DISPUTE

A. The Joint Venture and the Property

Palmetto Grand Ventures LLC is a Florida limited liability company that was formed on June 15, 2017, for the express purpose of acquiring, renovating, and operating The Palmetto Grand Resort & Spa (the "Hotel" or the "Property"), a 312-room full-service luxury beachfront hotel located at 650 Mandalay Avenue, Clearwater Beach, Florida 33767. The Hotel includes forty-two (42) suites among its 312 guest rooms, together with multiple food and beverage outlets, a full-service spa and wellness center, conference and banquet facilities, a beachfront pool complex, and related amenities consistent with its positioning as a premier Gulf Coast luxury resort destination.

PGV acquired the Property on August 1, 2017 for a total purchase price of $87.5 million. The acquisition was funded through a combination of third-party debt and equity contributions from the members. Gulf Atlantic National Bank ("GANB") provided a senior secured loan in the principal amount of $61.25 million, representing a loan-to-value ratio of approximately 70% (Loan No. CRE-2017-06284). The balance of the purchase price was funded through equity contributions made by PCG and MSH in proportion to their respective membership interests.

The ownership structure of PGV is as follows: PCG holds a sixty-five percent (65%) membership interest, and MSH holds a thirty-five percent (35%) membership interest. Under the terms of the Operating Agreement, PCG serves as the sole Manager of PGV and is vested with the authority and responsibility for the day-to-day management, operation, and strategic direction of the joint venture and the Property. MSH holds a passive, non-managing membership interest.

The Hotel is operated under a franchise agreement with Aurelian Hotels & Resorts Inc. ("Aurelian"), a nationally recognized luxury hospitality brand. The franchise agreement was executed on July 15, 2017 and has a twenty-year term expiring on July 14, 2037. Under the franchise agreement, PGV pays Aurelian a franchise fee equal to five percent (5%) of gross room revenue, plus a marketing fund contribution equal to two percent (2%) of gross room revenue. The franchise affiliation provides the Hotel with significant brand recognition, access to Aurelian's global reservation system, and participation in Aurelian's loyalty program, all of which are material contributors to the Hotel's revenue performance.

Following the acquisition, PGV undertook a comprehensive renovation of the Property during the period from 2017 through 2019. The total renovation capital invested was approximately $24.3 million, funded by the members in proportion to their respective membership interests. Specifically, PCG contributed $15.795 million (65%) and MSH contributed $8.505 million (35%) toward the renovation program. The renovation encompassed a full refresh of guest rooms and suites, upgrades to the Hotel's food and beverage outlets, expansion and modernization of the spa and wellness facilities, enhancements to the pool and beachfront amenities, and improvements to the Hotel's technology infrastructure and energy systems. These capital investments were instrumental in repositioning the Hotel as one of the leading luxury resort properties on Florida's Gulf Coast.

The Hotel has performed strongly in the years since the renovation was completed. For the fiscal year ended December 31, 2022—the valuation date at issue in this arbitration—the Hotel generated total revenue of approximately $62.8 million, achieved a Revenue Per Available Room ("RevPAR") of $289, produced Net Operating Income ("NOI") of approximately $18.4 million, and generated hotel-level Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA") of approximately $19.7 million. These performance metrics reflect the Hotel's strong competitive position within the Clearwater Beach and broader Tampa Bay luxury hospitality market.

As of December 31, 2022, PGV's outstanding indebtedness to Gulf Atlantic National Bank was approximately $48.6 million. The loan bears interest at a floating rate equal to the Secured Overnight Financing Rate ("SOFR") plus 2.25% and matures on August 1, 2027. The loan has been serviced in accordance with its terms throughout the life of the joint venture, and PGV has not experienced any events of default under the credit facility.

B. The Call Option and PCG's Exercise

Section 12.4 of the Operating Agreement grants PCG, as the managing member, the right to purchase MSH's entire membership interest in PGV following the fifth anniversary of the Effective Date of the Operating Agreement. The Effective Date is June 15, 2017; accordingly, the call-option right became exercisable on or after June 15, 2022. Section 12.4 provides that the purchase price for the redeemed interest shall be "Fair Market Value," as determined by an independent MAI-certified appraiser selected by PCG. The Operating Agreement sets forth a detailed framework for the valuation process, including the opportunity for the non-exercising member to obtain its own independent appraisal and, in the event of a material divergence between the two appraisals, the appointment of a neutral third appraiser.

PCG delivered its written call-option exercise notice to MSH on January 9, 2023, in compliance with the notice provisions set forth in Section 12.4(a) of the Operating Agreement. The notice stated PCG's intention to exercise its call-option right and to purchase the entirety of MSH's 35% membership interest in PGV.

In accordance with Section 12.4(b) of the Operating Agreement, PCG retained Whitfield Realty Advisors LLC ("Whitfield") to serve as the independent MAI-certified appraiser responsible for determining the Fair Market Value of PGV's real property and operating assets. The engagement was led by Gerald K. Whitfield, MAI, the firm's founding principal, whose office is located at 500 East Broward Boulevard, Suite 900, Fort Lauderdale, Florida 33394. Mr. Whitfield is a highly experienced commercial real estate appraiser with extensive expertise in the valuation of Florida hotel and resort properties, and he holds the MAI designation from the Appraisal Institute—the most widely recognized credential in the commercial real estate appraisal profession.

Whitfield completed its appraisal on February 10, 2023. The Whitfield Appraisal concluded that the Fair Market Value of 100% of PGV's real property and operating assets, as of the valuation date of December 31, 2022, was $118.0 million. In reaching this conclusion, Whitfield employed the following methodology:

Income Approach: Whitfield applied both a direct capitalization analysis and a discounted cash flow ("DCF") analysis. Under the direct capitalization approach, Whitfield applied a capitalization rate of 9.5% to the Hotel's stabilized net operating income. Under the DCF approach, Whitfield utilized a discount rate of 10.75% over a ten-year projection period. The two income-approach methodologies were blended to arrive at an income-approach value indication.

Sales Comparison Approach: Whitfield analyzed comparable sales of luxury hotel properties along the Florida Gulf Coast and the broader Southeastern United States, making appropriate adjustments for differences in location, size, condition, franchise affiliation, and date of sale.

Reconciliation and Weighting: Whitfield weighted the income approach at 40% and the sales comparison approach at 60% in arriving at its final value conclusion of $118.0 million. This weighting reflects the robust transaction market for comparable luxury hotel assets in the relevant period and the availability of reliable comparable sales data.

Based on the Whitfield Appraisal, PCG calculated the buyout price to be tendered to MSH as follows:

The accrued preferred return of $17,010,000 was calculated in accordance with Sections 4.1 and 5.2 of the Operating Agreement, which provide that each member shall be entitled to a cumulative, compounding preferred return of 8% per annum on its total capital contributions. MSH's total capital contributions consist of $10,000,000 in acquisition equity and $8,505,000 in renovation capital, for a total of $18,505,000. The preferred return was computed from the date of the initial capital contribution (August 1, 2017) through the valuation date of December 31, 2022, a period of approximately five years and five months.

On March 1, 2023, PCG tendered the full buyout price of $41,300,000 to MSH, together with a closing statement and supporting documentation reflecting the computation set forth above. MSH rejected the tender on March 10, 2023, asserting in its rejection notice that the valuation was materially understated and that the tendered price did not represent the true Fair Market Value of its membership interest.

C. MSH's Claims and PCG's Response

Following its rejection of PCG's tender, MSH filed its Demand for Arbitration with JAMS on March 20, 2023. In its Demand, MSH asserts three principal claims:

Claim 1 — Bad-Faith Valuation (OA Section 12.7): MSH alleges that PCG exercised the call option in bad faith and with the intent to materially understate the Fair Market Value of PGV's assets. MSH invokes Section 12.7 of the Operating Agreement, which provides that if the call option is exercised "in bad faith or with the intent to materially understate Fair Market Value," the redeeming member may be subject to a penalty of up to 25% of the determined Fair Market Value of the redeemed interest.

Claim 2 — Breach of Fiduciary Duty: MSH alleges that PCG, in its capacity as Manager, breached its fiduciary duties to MSH by, among other things, selecting an appraiser who would arrive at a valuation favorable to PCG, and by failing to provide MSH with timely access to certain financial records of PGV.

Claim 3 — Breach of OA Section 8.3 (Deferred Maintenance): MSH alleges that PCG, as Manager, failed to maintain the Property in "first-class condition" as required by Section 8.3 of the Operating Agreement, and that this failure to fund an alleged $8.2 million in deferred maintenance items artificially depressed the value of the Property as of the valuation date.

In support of its claims, MSH retained Beacon Valuation Group Inc. ("Beacon") to prepare an independent appraisal of PGV's real property and operating assets. The Beacon Appraisal was prepared by Dr. Priya Ramanathan, CFA, ASA, and was completed on April 14, 2023. The Beacon Appraisal concluded that the Fair Market Value of 100% of PGV's real property and operating assets as of December 31, 2022 was $151.5 million—a figure $33.5 million higher than the Whitfield Appraisal.

The Beacon Appraisal employed a markedly different methodology from the Whitfield Appraisal. Beacon relied exclusively on the income approach, utilizing a discounted cash flow analysis with a discount rate of 8.5% and a terminal capitalization rate of 7.75%. Beacon did not utilize the sales comparison approach. Additionally, Beacon applied two adjustments that PCG vigorously disputes: (i) an upward adjustment for the alleged "below-market" value of the Aurelian franchise agreement, on the theory that the franchise terms are more favorable than those currently available in the market; and (ii) an upward adjustment of $8.2 million for alleged deferred-maintenance items, on the theory that these items should be "added back" to the property's value as they represent work that should have been performed by the Manager but was not.

Based on the Beacon Appraisal, MSH demands a total buyout price of $70,000,000, calculated as follows:

PCG notes that MSH's claimed bad-faith penalty of $16,975,000 purports to represent a 32% punitive adjustment applied to the value of MSH's redeemed interest. This figure exceeds the express contractual cap set forth in Section 12.7 of the Operating Agreement, which limits the penalty to "up to twenty-five percent (25%) of the determined Fair Market Value of the redeemed interest." PCG vigorously contests both the applicability of any bad-faith penalty and the mathematical basis for MSH's claimed penalty amount.

The resulting valuation gap between the parties is $28.7 million ($70,000,000 demanded by MSH minus $41,300,000 tendered by PCG).

PCG filed its Response and Counterclaim on April 5, 2023. In its Response, PCG denies each and every allegation of bad faith, breach of fiduciary duty, and breach of the maintenance obligation under Section 8.3. PCG's Counterclaim seeks a declaration from the Arbitrator that the buyout price of $41,300,000, as computed from the Whitfield Appraisal and tendered on March 1, 2023, constitutes the proper Fair Market Value of MSH's membership interest under Section 12.4 of the Operating Agreement. PCG submits that the Whitfield Appraisal was conducted by a qualified, independent MAI-certified appraiser utilizing industry-standard methodologies, and that the resulting valuation is a reasonable and defensible determination of the Property's Fair Market Value as of the relevant date.

III. ISSUES FOR ARBITRATION

PCG respectfully identifies the following issues to be resolved by the Arbitrator in this proceeding. PCG presents these issues for the Arbitrator's consideration in structuring the proceedings and anticipates that the parties may further refine the framing of the issues during the preliminary conference and through subsequent briefing.

A. Primary Valuation Issue

The central issue in this arbitration is:

What is the Fair Market Value of 100% of PGV's real property and operating assets as of December 31, 2022, for purposes of the call-option redemption under Section 12.4 of the Operating Agreement?

Resolution of this overarching question will require the Arbitrator to address the following sub-issues, among others:

(a) Appropriate Capitalization Rate and discount Rate: The Whitfield Appraisal applied a capitalization rate of 9.5% and a DCF discount rate of 10.75%, while the Beacon Appraisal applied a DCF discount rate of 8.5% and a terminal capitalization rate of 7.75%. The selection of these rates is a significant driver of the valuation divergence and will require the Arbitrator to evaluate the competing expert opinions on risk-adjusted rates of return for luxury hotel assets in the Florida Gulf Coast market.

(b) Proper Weighting of Valuation Approaches: The Whitfield Appraisal weighted the income approach at 40% and the sales comparison approach at 60%, while the Beacon Appraisal relied exclusively on the income approach (DCF) without any consideration of the sales comparison approach. The question of whether the sales comparison approach should be given weight—and, if so, how much—is a material point of contention between the parties' respective experts.

(c) Treatment of the Aurelian Franchise Agreement: The Beacon Appraisal includes an upward adjustment for the purported "below-market" value of the Aurelian franchise agreement. PCG disputes this adjustment on both methodological and contractual grounds and contends that the franchise agreement should be valued at its existing contractual terms, consistent with standard appraisal practice for going-concern hotel valuations.

(d) Treatment of Alleged Deferred-Maintenance Items: The Beacon Appraisal includes an upward adjustment of $8.2 million for alleged deferred-maintenance items. PCG disputes the factual and analytical basis for this adjustment, as discussed further in Section III.C below.

B. Bad-Faith Claim Under OA Section 12.7

A second significant issue is whether PCG exercised the call option "in bad faith or with the intent to materially understate Fair Market Value" within the meaning of Section 12.7 of the Operating Agreement. This provision is a contractual safeguard that establishes a heightened standard of conduct for the exercise of the call-option right, and it imposes a potential penalty if that standard is not met.

PCG emphatically denies that it acted in bad faith or with any intent to understate the Fair Market Value of PGV's assets. PCG retained a highly qualified, independent MAI-certified appraiser who employed industry-standard methodologies and arrived at a valuation conclusion that is well within the range of reasonable professional judgment. The mere fact that the parties' respective appraisers reached different conclusions does not establish bad faith; it reflects the inherent subjectivity involved in the appraisal of complex commercial real estate assets.

To the extent the Arbitrator determines that any penalty is warranted under Section 12.7—which PCG firmly believes is not the case—the Arbitrator will need to determine the applicable penalty amount. PCG notes that Section 12.7 expressly caps the penalty at "up to twenty-five percent (25%) of the determined Fair Market Value of the redeemed interest." MSH's claimed penalty of $16,975,000 appears to represent a 32% punitive adjustment, which would exceed the contractual cap on its face. PCG disputes both the applicability and the amount of any penalty and reserves the right to present evidence and argument on this issue at the appropriate stage of the proceedings.

C. Deferred Maintenance Claim Under OA Section 8.3

MSH's third claim alleges that PCG, in its capacity as Manager of PGV, breached Section 8.3 of the Operating Agreement by failing to maintain the Property in "first-class condition." Specifically, MSH contends that PCG failed to fund $8.2 million in deferred-maintenance items, including alleged deficiencies in the Hotel's HVAC systems, roofing, exterior facades, and certain common-area finishes. MSH contends that these deferred items artificially depressed the Property's appraised value and that the valuation should be adjusted upward by $8.2 million to account for work that should have been performed.

PCG disputes this claim on multiple grounds. PCG, as Manager, has diligently maintained the Property in accordance with its obligations under the Operating Agreement and has implemented a comprehensive capital expenditure program that has kept the Hotel in excellent condition. PCG intends to present evidence at the hearing demonstrating that the alleged deferred-maintenance items identified by MSH are either (a) items that have already been addressed, (b) items that are the subject of budgeted future capital expenditures that were approved through the ordinary course of PGV's annual budgeting process, or (c) items that do not constitute "deferred maintenance" within the meaning of Section 8.3 and industry norms for luxury hotel properties.

The resolution of this issue will require the Arbitrator to determine whether PCG breached Section 8.3, and if so, whether any such breach warrants a valuation adjustment in the amount of $8.2 million or any other amount.

D. Preferred Return Calculation

PCG believes that the parties are in substantial agreement regarding the calculation of MSH's accrued preferred return. Under Sections 4.1 and 5.2 of the Operating Agreement, each member is entitled to a cumulative, compounding preferred return of 8% per annum on its total capital contributions. PCG has calculated MSH's accrued preferred return as $17,010,000, based on 8% annual compounding on MSH's total capital contributions of $18,505,000 ($10,000,000 in acquisition equity plus $8,505,000 in renovation capital) from August 1, 2017 through December 31, 2022.

PCG notes that MSH's Demand for Arbitration does not appear to dispute this calculation, and MSH's own computation of its demanded buyout price includes the same $17,010,000 preferred-return figure. Nevertheless, PCG proposes that the parties formally stipulate to this figure, subject to verification with Grantham, Pryce & Associates CPAs, PCG's accountants, to eliminate this item as a potential source of dispute. To the extent any discrepancy exists, PCG is prepared to work with MSH's financial advisors to reconcile the calculation promptly.

E. PCG's Counterclaim

PCG's Counterclaim, filed on April 5, 2023, seeks a declaration from the Arbitrator that the buyout price of $41,300,000 tendered by PCG on March 1, 2023 constitutes the proper Fair Market Value of MSH's 35% membership interest in PGV, as determined in accordance with Section 12.4 of the Operating Agreement. This declaratory relief is sought as an affirmative matter and will be resolved through the same evidentiary proceedings that address MSH's claims. The Counterclaim is logically intertwined with the primary valuation issue identified in Section III.A above, and PCG anticipates that the Arbitrator's resolution of the FMV question will effectively dispose of the Counterclaim as well.

IV. APPOINTMENT OF NEUTRAL THIRD APPRAISER UNDER OA SECTION 12.4(c)

PCG respectfully brings to the Arbitrator's attention the provisions of Section 12.4(c) of the Operating Agreement, which establishes a mechanism for the appointment of a neutral third appraiser in the event that the parties' respective appraisals diverge by more than a specified threshold. Section 12.4(c) provides, in relevant part:

"In the event that the appraisals obtained by the Manager and the Non-Managing Member diverge by more than ten percent (10%), the parties shall jointly select a third MAI-certified appraiser to conduct an independent appraisal. The Fair Market Value shall then be determined as the average of the two appraisals that are closest in value."

The divergence between the Whitfield Appraisal ($118.0 million) and the Beacon Appraisal ($151.5 million) is $33.5 million, which represents a variance of approximately 28.4%, calculated as follows:

($151,500,000 − $118,000,000) ÷ $118,000,000 = 28.4%

This divergence clearly and substantially exceeds the 10% threshold specified in Section 12.4(c), thereby triggering the parties' contractual obligation to jointly select and retain a neutral third MAI-certified appraiser.

PCG therefore respectfully requests that the Arbitrator direct the parties to jointly select a neutral third MAI-certified appraiser in accordance with Section 12.4(c) of the Operating Agreement. In furtherance of this request, PCG proposes the following framework:

(a) Timeline for Selection: The parties should confer and identify a mutually acceptable neutral appraiser within fourteen (14) days of the preliminary conference (i.e., by May 30, 2023). If the parties are unable to agree on a neutral appraiser within this period, PCG requests that the Arbitrator appoint one from a list of qualified candidates to be submitted by each party.

(b) Target Completion Date: The neutral appraiser should be given a target of sixty (60) days from retention to complete its appraisal, with a preliminary indication of value to be provided at approximately the midpoint of the engagement.

(c) Cost Allocation: The costs of the neutral appraiser should be shared equally between PCG and MSH, consistent with the equitable principles underlying the contractual mechanism.

(d) Valuation Date: The valuation date for the neutral appraisal should be December 31, 2022, consistent with the valuation dates used in both the Whitfield and Beacon appraisals.

(e) Scope: The scope of the neutral appraisal should encompass 100% of PGV's real property and operating assets, including the Hotel, its FF&E, and the going-concern value of the hotel operations, consistent with the scope of the Whitfield and Beacon appraisals.

PCG submits that the prompt appointment of a neutral third appraiser is critical to the efficient progression of this arbitration. The neutral appraisal will provide an independent data point that may substantially narrow the valuation gap between the parties and may facilitate resolution of this matter without the need for a full evidentiary hearing on the valuation issue.

V. ANTICIPATED EXPERT WITNESSES

PCG provides the following information regarding the expert witnesses it anticipates designating in this proceeding, as well as its understanding of MSH's anticipated expert witnesses, for the Arbitrator's consideration in scheduling the proceedings.

A. PCG's Expert(s)

PCG intends to designate the following expert witness:

Gerald K. Whitfield, MAI Whitfield Realty Advisors LLC 500 East Broward Boulevard, Suite 900 Fort Lauderdale, Florida 33394

Subject Matter: Mr. Whitfield will testify regarding his determination of the Fair Market Value of The Palmetto Grand Resort & Spa and PGV's operating assets as of December 31, 2022. His testimony will address his appraisal methodology, including the application of the income approach (direct capitalization at a 9.5% capitalization rate and discounted cash flow analysis at a 10.75% discount rate) and the sales comparison approach, as well as the rationale for weighting these approaches at 40% and 60%, respectively. Mr. Whitfield will also testify regarding prevailing market conditions for luxury hotel assets along the Florida Gulf Coast and in the broader Southeastern United States, including relevant comparable sales, operating metrics, and investor return expectations.

Qualifications: Mr. Whitfield holds the MAI designation from the Appraisal Institute, the premier professional designation in commercial real estate appraisal. He has over twenty-five years of experience in the valuation of commercial real estate, with a particular focus on hotel and resort properties in the State of Florida. He has been qualified as an expert witness in numerous proceedings before state and federal courts and arbitration tribunals.

PCG reserves the right to designate additional expert witnesses as discovery progresses and the issues in dispute are further defined. Without limitation, PCG may retain and designate experts in the following areas: (i) hospitality operations and management, to address MSH's claims regarding the Hotel's management and operational performance; (ii) capital expenditure practices and property maintenance standards for luxury hotel properties, to address MSH's deferred-maintenance claims under Section 8.3 of the Operating Agreement; and (iii) the economics of the franchise agreement with Aurelian Hotels & Resorts Inc., to address any claims regarding the purported "below-market" value of the franchise terms. PCG will provide timely disclosure of any additional expert designations in accordance with the scheduling order entered by the Arbitrator.

B. MSH's Anticipated Expert(s)

Based on the materials filed by MSH to date, PCG understands that MSH intends to designate the following expert witness:

Dr. Priya Ramanathan, CFA, ASA Beacon Valuation Group Inc. 2600 South Bayshore Drive, Suite 1050 Miami, Florida 33133

PCG understands that Dr. Ramanathan will testify in support of the Beacon Appraisal and MSH's contention that the Fair Market Value of PGV's assets is $151.5 million.

PCG further anticipates that MSH may designate one or more additional experts to address the deferred-maintenance and capital expenditure issues raised in MSH's Claim 3. PCG requests that the Arbitrator establish a deadline for expert designations and disclosures as part of the scheduling order.

C. Neutral Third Appraiser

As discussed in Section IV above, PCG has requested that the Arbitrator direct the parties to jointly retain a neutral third MAI-certified appraiser pursuant to Section 12.4(c) of the Operating Agreement. The neutral appraiser will serve as an independent expert whose conclusions will be relevant to the Arbitrator's determination of Fair Market Value. The neutral appraiser's role is distinct from that of the parties' retained experts; the neutral appraiser will provide an independent valuation without regard to the positions advanced by either party. PCG anticipates that the neutral appraiser's report will be a significant piece of evidence in the proceedings.

VI. PROPOSED DISCOVERY SCHEDULE

PCG recognizes the importance of establishing a clear and reasonable discovery schedule at the outset of these proceedings. To that end, PCG proposes the following schedule, which is designed to ensure that the parties and the Arbitrator have access to all relevant evidence while minimizing unnecessary delay and expense. This proposed schedule is subject to modification by the Arbitrator and by agreement of the parties.

PCG offers the following observations and requests regarding the scope and conduct of discovery:

Proportionality. PCG respectfully submits that the scope of discovery in this proceeding should be proportional to the amounts in controversy and the issues actually in dispute. The gap between the parties' positions is $28.7 million. While this is a substantial sum, the issues in dispute are relatively focused: the Fair Market Value of a single hotel property and its associated operations, the existence or non-existence of bad faith, and the adequacy of property maintenance. PCG requests that the Arbitrator keep these parameters in mind when ruling on discovery disputes.

Scope Limitations. PCG requests that the Arbitrator limit document requests to materials directly relevant to the valuation issues, the bad-faith claim under Section 12.7, and the deferred-maintenance claim under Section 8.3. PCG anticipates that MSH may seek broad discovery into PCG's internal business records, including records of PCG's other investments and operations that are unrelated to PGV and the Hotel. Such requests would be unduly burdensome and disproportionate to the needs of the case, and PCG respectfully requests that the Arbitrator deny any such requests. Discovery should be focused on PGV's financial and operational records, the appraisals and their underlying data, the Hotel's maintenance and capital expenditure records, and communications between the parties regarding the call-option exercise and valuation process.

Cooperation. PCG is committed to conducting discovery in a cooperative and efficient manner and will work in good faith with MSH's counsel to resolve discovery disputes informally before bringing any matters to the Arbitrator's attention.

VII. PROPOSED PROCEDURAL RULES AND HEARING LOGISTICS

A. Governing Rules

This arbitration is governed by the JAMS Comprehensive Arbitration Rules & Procedures, as specified in Section 15.2 of the Operating Agreement. The seat of the arbitration is Jacksonville, Florida, as mandated by Section 15.2. The substantive law governing the parties' rights and obligations is the law of the State of Florida, including the Florida Revised Limited Liability Company Act, Chapter 605, Florida Statutes, and applicable provisions of Florida contract law regarding the interpretation and enforcement of the Operating Agreement.

B. Hearing Format

PCG proposes that the evidentiary hearing be conducted over a period of no more than five (5) hearing days, with each side receiving an equal allocation of time for the presentation of evidence, including direct and cross-examination of witnesses, and opening and closing statements. PCG believes that five hearing days should be sufficient to present the evidence on all issues in dispute, given the relatively focused nature of the claims and counterclaims.

PCG proposes that the hearing be held at the JAMS Jacksonville Resolution Center, located at 1 Independent Drive, Suite 1600, Jacksonville, Florida 32202, consistent with the contractual seat of the arbitration.

PCG is amenable to hybrid hearing procedures to the extent that such procedures would promote efficiency and convenience without prejudicing either party's right to present its case effectively. For example, PCG would not object to the remote testimony of certain witnesses via videoconference, particularly out-of-state expert witnesses or fact witnesses whose testimony is limited in scope, provided that appropriate safeguards are in place to ensure the integrity of the testimony and the ability of counsel and the Arbitrator to observe the witness's demeanor.

C. Confidentiality

PCG respectfully requests that the Arbitrator enter a confidentiality order governing the treatment of sensitive information produced or disclosed during the course of these proceedings. The financial nature of this dispute will necessarily require the production and examination of proprietary financial information, including PGV's internal financial statements, operating budgets, capital expenditure plans, and projections; the appraisal reports and their supporting workpapers; internal business records of both PCG and MSH; and any settlement discussions that may occur during the proceedings.

PCG notes that the Operating Agreement does not contain an express provision requiring confidentiality in arbitration proceedings. However, PCG submits that the financial nature of the dispute, the involvement of proprietary hotel operating data, the sensitivity of the franchise relationship with Aurelian Hotels & Resorts Inc., and the potential impact of public disclosure on the Hotel's competitive position all weigh strongly in favor of a protective order. PCG proposes that the confidentiality order include provisions for the designation of documents and testimony as "Confidential" or "Highly Confidential — Attorneys' Eyes Only," with appropriate restrictions on the use and dissemination of designated materials.

D. Pre-Hearing Submissions

PCG proposes that the parties exchange pre-hearing briefs and exhibit lists at least twenty-one (21) days before the commencement of the evidentiary hearing. Objections to exhibits and motions in limine should be due no later than fourteen (14) days before the hearing, with responses due seven (7) days before the hearing. This schedule will allow the Arbitrator adequate time to rule on any pre-hearing disputes and will ensure that both parties are fully prepared for the presentation of evidence.

PCG further proposes that the parties exchange witness lists, including a brief summary of the anticipated testimony of each witness, at the same time as the pre-hearing briefs. This will facilitate the efficient allocation of hearing time and minimize the risk of surprise at the hearing.

VIII. OTHER MATTERS FOR THE PRELIMINARY CONFERENCE

PCG raises the following additional matters for the Arbitrator's consideration at the May 15, 2023 preliminary conference.

A. Bifurcation

PCG respectfully requests that the Arbitrator consider whether the bad-faith claim asserted by MSH under Section 12.7 of the Operating Agreement should be bifurcated from the primary valuation determination. PCG submits that bifurcation would serve the interests of efficiency and fairness for several reasons.

The penalty analysis under Section 12.7 is contingent upon a threshold finding of bad faith. The question of whether PCG acted "in bad faith or with the intent to materially understate Fair Market Value" is analytically distinct from the question of what the Fair Market Value of PGV's assets actually is. The bad-faith inquiry focuses on PCG's subjective intent and conduct, whereas the valuation inquiry is an objective determination of property value based on market data and expert analysis. These two inquiries involve different legal standards, different evidentiary considerations, and potentially different witnesses.

Bifurcation would promote efficiency because, if the Arbitrator determines that PCG did not act in bad faith—as PCG firmly believes the evidence will establish—the $16,975,000 penalty claim would be eliminated entirely. This would remove a significant source of complexity from the proceedings and would allow the Arbitrator and the parties to focus their resources on the core valuation dispute. Conversely, if the bad-faith and valuation issues are tried together, the proceedings will be complicated by the injection of intent-based evidence and argument into what would otherwise be a straightforward appraisal dispute.

PCG recognizes that the Arbitrator has broad discretion in organizing the proceedings and welcomes the Arbitrator's views on this issue at the preliminary conference.

B. Mediation

PCG is open to mediation at an appropriate juncture in these proceedings. PCG believes that mediation is most likely to be productive after the neutral third appraiser has provided its preliminary indication of value. At that point, the parties will have the benefit of three independent appraisals—the Whitfield Appraisal, the Beacon Appraisal, and the neutral appraisal—which may substantially narrow the range of dispute and provide a more informed basis for settlement discussions.

PCG suggests that the parties revisit the question of mediation after the neutral appraiser's preliminary indication of value is received, which PCG estimates will be available by mid-July 2023. If the parties mutually agree that mediation would be beneficial at that stage, PCG is prepared to participate in a mediation session before a JAMS mediator or another mutually acceptable neutral.

C. Stipulations

In the interest of narrowing the issues in dispute and promoting the efficient use of the Arbitrator's and the parties' time, PCG proposes that the parties attempt to stipulate to certain facts and figures that PCG believes are undisputed or capable of prompt verification. Specifically, PCG proposes stipulations regarding the following:

(a) The valuation date of December 31, 2022;

(b) The outstanding debt balance of $48,600,000 owed to Gulf Atlantic National Bank as of December 31, 2022;

(c) MSH's total capital contributions of $18,505,000, consisting of $10,000,000 in acquisition equity and $8,505,000 in renovation capital;

(d) The accrued preferred return of $17,010,000 owed to MSH under Sections 4.1 and 5.2 of the Operating Agreement, subject to verification with Grantham, Pryce & Associates CPAs, PCG's accountants;

(e) The Hotel's 2022 financial performance, including total revenue of $62.8 million, Net Operating Income of $18.4 million, and hotel-level EBITDA of $19.7 million;

(f) The basic terms of the Gulf Atlantic National Bank loan (Loan No. CRE-2017-06284; interest rate of SOFR + 2.25%; maturity date of August 1, 2027).

PCG anticipates that MSH may be willing to stipulate to these items, as they appear to be largely uncontested based on MSH's own filings. Establishing these stipulations early in the proceedings will allow both parties and their experts to focus on the genuinely disputed issues, particularly the appropriate valuation methodology, cap rates and discount rates, and the factual predicates for the bad-faith and deferred-maintenance claims.

D. Insurance Matters

PCG notes for the record that it has tendered the defense of MSH's claims in this arbitration to its managers' liability insurer, Atlantic Omnivrel Insurance Company, under Policy No. AFML-2022-08745. The policy provides coverage of $10 million per occurrence and $10 million in the aggregate. Atlantic Fidelity has agreed to fund PCG's defense costs under a reservation of rights. The reservation of rights pertains to certain coverage questions that are not relevant to the merits of the arbitration.

This information is provided solely for the Arbitrator's administrative awareness. The existence of insurance coverage does not affect the scope of the proceedings, the substantive issues to be resolved, or the parties' respective rights and obligations under the Operating Agreement. PCG does not intend to inject insurance coverage issues into the arbitration, and PCG requests that the Arbitrator treat this disclosure as informational only.

IX. CONCLUSION

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

1. Set a procedural schedule for these proceedings consistent with the proposals set forth in Section VI of this Statement, or such other schedule as the Arbitrator deems appropriate in light of the parties' positions;

2. Direct the parties to jointly select and retain a neutral third MAI-certified appraiser pursuant to Section 12.4(c) of the Operating Agreement, with the selection to be completed within fourteen (14) days of the preliminary conference and the neutral appraisal to be completed within sixty (60) days of retention;

3. Address the procedural matters identified in Sections VII and VIII of this Statement, including the proposed hearing format, confidentiality protections, bifurcation of the bad-faith claim, and the parties' efforts to stipulate to undisputed facts; and

4. Grant such other and further relief as the Arbitrator deems just and appropriate.

PCG is prepared to proceed efficiently toward the resolution of this dispute. PCG remains committed to the arbitration process and to working cooperatively with MSH's counsel and the Arbitrator to ensure that these proceedings are conducted in a fair, orderly, and cost-effective manner.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Francesca Morano, Partner

Samuel Eklund, Partner Simone Laroche, Associate Jeffrey Park, Associate

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

Counsel for Respondent Pellegrino Capital Group LLC

Dated: May 12, 2023

CERTIFICATE OF SERVICE

I, Francesca Morano, hereby certify that on May 12, 2023, a true and correct copy of the foregoing Respondent Pellegrino Capital Group LLC's Preliminary Conference Statement was served upon counsel for Claimant Meridian Shores Hospitality LLC at the following address, by electronic mail and overnight courier:

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

________________________________________

Francesca Morano

Dated: May 12, 2023

MERIDIAN SHORES HOSPITALITY LLC,

Claimant,

PELLEGRINO CAPITAL GROUP LLC,

Respondent.

Component	Amount
Gross Asset Value (100% FMV per Whitfield Appraisal)	$118,000,000
Less: Outstanding Debt (GANB Loan No. CRE-2017-06284)	($48,600,000)
Joint Venture Net Equity	$69,400,000
MSH's 35% Share of Net Equity	$24,290,000
Plus: MSH's Accrued Preferred Return (8% cumulative compounding on $18,505,000 total capital contributions, August 1, 2017 through December 31, 2022)	$17,010,000
Total Tendered Buyout Price	$41,300,000
Component	Amount
MSH's 35% Share of Net Equity (based on $151.5M FMV less $48.6M debt = $102.9M × 35%)	$36,015,000
Plus: MSH's Accrued Preferred Return	$17,010,000
Plus: Bad-Faith Penalty (OA Section 12.7)	$16,975,000
Total Demanded by MSH	$70,000,000
Phase	Proposed Deadline
Joint selection of neutral third appraiser (OA § 12.4(c))	May 30, 2023 (14 days after preliminary conference)
Initial document requests served by both parties	June 1, 2023
Interrogatories served by both parties	June 1, 2023
Responses to initial document requests	July 1, 2023
Responses to interrogatories	July 1, 2023
Neutral appraiser's preliminary indication of value	Mid-July 2023
Completion of document production	August 22, 2023
Expert depositions	September 2023
Party depositions (fact witnesses)	October 2023
Expert reports exchanged	November 2023
Rebuttal expert reports exchanged	December 2023
Pre-hearing briefs filed	January 2024

Evidentiary hearing

JAMS ARBITRATION
Jacksonville Resolution Center Jacksonville, Florida
JAMS Ref. No. 1440032871
Before the Honorable Margaret Liu Chen (Ret.) Arbitrator
Preliminary Conference Scheduled: May 15, 2023
Filed: May 12, 2023
Prepared by:
CALDERWOOD & HARKNESS LLP 801 Brickell Avenue, Suite 2800 Miami, Florida 33131
Francesca Morano, Partner (Responsible Partner) Samuel Eklund, Partner (Billing Partner) Simone Laroche, Associate (Lead Associate) Jeffrey Park, Associate (Working Associate)
Counsel for Respondent Pellegrino Capital Group LLC 1900 Bayshore Boulevard, Suite 1400 Tampa, Florida 33606
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I. INTRODUCTION
Respondent Pellegrino Capital Group LLC ("PCG" or "Respondent") respectfully submits this Preliminary Conference Statement in advance of the preliminary conference scheduled before the Honorable Margaret Liu Chen (Ret.) for May 15, 2023. This statement is submitted in accordance with the JAMS Comprehensive Arbitration Rules & Procedures and is intended to assist the Arbitrator in organizing these proceedings in an efficient and orderly manner.
This dispute arises out of the redemption of a minority membership interest in a Florida limited liability company that owns and operates a luxury beachfront hotel on Florida's Gulf Coast. Claimant Meridian Shores Hospitality LLC ("MSH" or "Claimant") filed its Demand for Arbitration on March 20, 2023, challenging the buyout valuation of its thirty-five percent (35%) membership interest in Palmetto Grand Ventures LLC ("PGV"), a Florida limited liability company formed on June 15, 2017. MSH contends that the redemption price offered by PCG materially understates the Fair Market Value of the venture and its assets, and further asserts claims for bad-faith valuation and breach of the Operating Agreement's maintenance obligations.
PCG filed its Response and Counterclaim on April 5, 2023, denying MSH's allegations in their entirety and affirmatively seeking declaratory relief that the redemption price of $41.3 million tendered by PCG on March 1, 2023 constitutes the proper Fair Market Value of MSH's membership interest, as calculated in accordance with Section 12.4 of the Operating Agreement of Palmetto Grand Ventures LLC, dated June 15, 2017 (the "Operating Agreement" or "OA"). PCG's tendered price was derived from an independent appraisal conducted by a qualified MAI-certified appraiser and reflects the contractually prescribed methodology for computing the buyout price owed to a departing member.
The parties' dispute resolution obligations are governed by Section 15.2 of the Operating Agreement, which mandates binding arbitration under the JAMS Comprehensive Arbitration Rules & Procedures, seated in Jacksonville, Florida, and governed by the substantive laws of the State of Florida, including the Florida Revised Limited Liability Company Act, Chapter 605, Florida Statutes. There is no dispute between the parties regarding the Arbitrator's jurisdiction over the claims and counterclaims presented in this proceeding.
PCG submits this Preliminary Conference Statement to provide the Arbitrator with a concise overview of the dispute, to identify the issues that PCG believes must be resolved, and to propose a procedural framework that will promote the efficient and fair resolution of this matter. PCG is committed to participating in these proceedings in good faith and looks forward to a productive preliminary conference on May 15, 2023.
II. SUMMARY OF THE DISPUTE
A. The Joint Venture and the Property
Palmetto Grand Ventures LLC is a Florida limited liability company that was formed on June 15, 2017, for the express purpose of acquiring, renovating, and operating The Palmetto Grand Resort & Spa (the "Hotel" or the "Property"), a 312-room full-service luxury beachfront hotel located at 650 Mandalay Avenue, Clearwater Beach, Florida 33767. The Hotel includes forty-two (42) suites among its 312 guest rooms, together with multiple food and beverage outlets, a full-service spa and wellness center, conference and banquet facilities, a beachfront pool complex, and related amenities consistent with its positioning as a premier Gulf Coast luxury resort destination.
PGV acquired the Property on August 1, 2017 for a total purchase price of $87.5 million. The acquisition was funded through a combination of third-party debt and equity contributions from the members. Gulf Atlantic National Bank ("GANB") provided a senior secured loan in the principal amount of $61.25 million, representing a loan-to-value ratio of approximately 70% (Loan No. CRE-2017-06284). The balance of the purchase price was funded through equity contributions made by PCG and MSH in proportion to their respective membership interests.
The ownership structure of PGV is as follows: PCG holds a sixty-five percent (65%) membership interest, and MSH holds a thirty-five percent (35%) membership interest. Under the terms of the Operating Agreement, PCG serves as the sole Manager of PGV and is vested with the authority and responsibility for the day-to-day management, operation, and strategic direction of the joint venture and the Property. MSH holds a passive, non-managing membership interest.
The Hotel is operated under a franchise agreement with Aurelian Hotels & Resorts Inc. ("Aurelian"), a nationally recognized luxury hospitality brand. The franchise agreement was executed on July 15, 2017 and has a twenty-year term expiring on July 14, 2037. Under the franchise agreement, PGV pays Aurelian a franchise fee equal to five percent (5%) of gross room revenue, plus a marketing fund contribution equal to two percent (2%) of gross room revenue. The franchise affiliation provides the Hotel with significant brand recognition, access to Aurelian's global reservation system, and participation in Aurelian's loyalty program, all of which are material contributors to the Hotel's revenue performance.
Following the acquisition, PGV undertook a comprehensive renovation of the Property during the period from 2017 through 2019. The total renovation capital invested was approximately $24.3 million, funded by the members in proportion to their respective membership interests. Specifically, PCG contributed $15.795 million (65%) and MSH contributed $8.505 million (35%) toward the renovation program. The renovation encompassed a full refresh of guest rooms and suites, upgrades to the Hotel's food and beverage outlets, expansion and modernization of the spa and wellness facilities, enhancements to the pool and beachfront amenities, and improvements to the Hotel's technology infrastructure and energy systems. These capital investments were instrumental in repositioning the Hotel as one of the leading luxury resort properties on Florida's Gulf Coast.
The Hotel has performed strongly in the years since the renovation was completed. For the fiscal year ended December 31, 2022—the valuation date at issue in this arbitration—the Hotel generated total revenue of approximately $62.8 million, achieved a Revenue Per Available Room ("RevPAR") of $289, produced Net Operating Income ("NOI") of approximately $18.4 million, and generated hotel-level Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA") of approximately $19.7 million. These performance metrics reflect the Hotel's strong competitive position within the Clearwater Beach and broader Tampa Bay luxury hospitality market.
As of December 31, 2022, PGV's outstanding indebtedness to Gulf Atlantic National Bank was approximately $48.6 million. The loan bears interest at a floating rate equal to the Secured Overnight Financing Rate ("SOFR") plus 2.25% and matures on August 1, 2027. The loan has been serviced in accordance with its terms throughout the life of the joint venture, and PGV has not experienced any events of default under the credit facility.
B. The Call Option and PCG's Exercise
Section 12.4 of the Operating Agreement grants PCG, as the managing member, the right to purchase MSH's entire membership interest in PGV following the fifth anniversary of the Effective Date of the Operating Agreement. The Effective Date is June 15, 2017; accordingly, the call-option right became exercisable on or after June 15, 2022. Section 12.4 provides that the purchase price for the redeemed interest shall be "Fair Market Value," as determined by an independent MAI-certified appraiser selected by PCG. The Operating Agreement sets forth a detailed framework for the valuation process, including the opportunity for the non-exercising member to obtain its own independent appraisal and, in the event of a material divergence between the two appraisals, the appointment of a neutral third appraiser.
PCG delivered its written call-option exercise notice to MSH on January 9, 2023, in compliance with the notice provisions set forth in Section 12.4(a) of the Operating Agreement. The notice stated PCG's intention to exercise its call-option right and to purchase the entirety of MSH's 35% membership interest in PGV.
In accordance with Section 12.4(b) of the Operating Agreement, PCG retained Whitfield Realty Advisors LLC ("Whitfield") to serve as the independent MAI-certified appraiser responsible for determining the Fair Market Value of PGV's real property and operating assets. The engagement was led by Gerald K. Whitfield, MAI, the firm's founding principal, whose office is located at 500 East Broward Boulevard, Suite 900, Fort Lauderdale, Florida 33394. Mr. Whitfield is a highly experienced commercial real estate appraiser with extensive expertise in the valuation of Florida hotel and resort properties, and he holds the MAI designation from the Appraisal Institute—the most widely recognized credential in the commercial real estate appraisal profession.
Whitfield completed its appraisal on February 10, 2023. The Whitfield Appraisal concluded that the Fair Market Value of 100% of PGV's real property and operating assets, as of the valuation date of December 31, 2022, was $118.0 million. In reaching this conclusion, Whitfield employed the following methodology:
Income Approach: Whitfield applied both a direct capitalization analysis and a discounted cash flow ("DCF") analysis. Under the direct capitalization approach, Whitfield applied a capitalization rate of 9.5% to the Hotel's stabilized net operating income. Under the DCF approach, Whitfield utilized a discount rate of 10.75% over a ten-year projection period. The two income-approach methodologies were blended to arrive at an income-approach value indication.
Sales Comparison Approach: Whitfield analyzed comparable sales of luxury hotel properties along the Florida Gulf Coast and the broader Southeastern United States, making appropriate adjustments for differences in location, size, condition, franchise affiliation, and date of sale.
Reconciliation and Weighting: Whitfield weighted the income approach at 40% and the sales comparison approach at 60% in arriving at its final value conclusion of $118.0 million. This weighting reflects the robust transaction market for comparable luxury hotel assets in the relevant period and the availability of reliable comparable sales data.
Based on the Whitfield Appraisal, PCG calculated the buyout price to be tendered to MSH as follows:
The accrued preferred return of $17,010,000 was calculated in accordance with Sections 4.1 and 5.2 of the Operating Agreement, which provide that each member shall be entitled to a cumulative, compounding preferred return of 8% per annum on its total capital contributions. MSH's total capital contributions consist of $10,000,000 in acquisition equity and $8,505,000 in renovation capital, for a total of $18,505,000. The preferred return was computed from the date of the initial capital contribution (August 1, 2017) through the valuation date of December 31, 2022, a period of approximately five years and five months.
On March 1, 2023, PCG tendered the full buyout price of $41,300,000 to MSH, together with a closing statement and supporting documentation reflecting the computation set forth above. MSH rejected the tender on March 10, 2023, asserting in its rejection notice that the valuation was materially understated and that the tendered price did not represent the true Fair Market Value of its membership interest.
C. MSH's Claims and PCG's Response
Following its rejection of PCG's tender, MSH filed its Demand for Arbitration with JAMS on March 20, 2023. In its Demand, MSH asserts three principal claims:
Claim 1 — Bad-Faith Valuation (OA Section 12.7): MSH alleges that PCG exercised the call option in bad faith and with the intent to materially understate the Fair Market Value of PGV's assets. MSH invokes Section 12.7 of the Operating Agreement, which provides that if the call option is exercised "in bad faith or with the intent to materially understate Fair Market Value," the redeeming member may be subject to a penalty of up to 25% of the determined Fair Market Value of the redeemed interest.
Claim 2 — Breach of Fiduciary Duty: MSH alleges that PCG, in its capacity as Manager, breached its fiduciary duties to MSH by, among other things, selecting an appraiser who would arrive at a valuation favorable to PCG, and by failing to provide MSH with timely access to certain financial records of PGV.
Claim 3 — Breach of OA Section 8.3 (Deferred Maintenance): MSH alleges that PCG, as Manager, failed to maintain the Property in "first-class condition" as required by Section 8.3 of the Operating Agreement, and that this failure to fund an alleged $8.2 million in deferred maintenance items artificially depressed the value of the Property as of the valuation date.
In support of its claims, MSH retained Beacon Valuation Group Inc. ("Beacon") to prepare an independent appraisal of PGV's real property and operating assets. The Beacon Appraisal was prepared by Dr. Priya Ramanathan, CFA, ASA, and was completed on April 14, 2023. The Beacon Appraisal concluded that the Fair Market Value of 100% of PGV's real property and operating assets as of December 31, 2022 was $151.5 million—a figure $33.5 million higher than the Whitfield Appraisal.
The Beacon Appraisal employed a markedly different methodology from the Whitfield Appraisal. Beacon relied exclusively on the income approach, utilizing a discounted cash flow analysis with a discount rate of 8.5% and a terminal capitalization rate of 7.75%. Beacon did not utilize the sales comparison approach. Additionally, Beacon applied two adjustments that PCG vigorously disputes: (i) an upward adjustment for the alleged "below-market" value of the Aurelian franchise agreement, on the theory that the franchise terms are more favorable than those currently available in the market; and (ii) an upward adjustment of $8.2 million for alleged deferred-maintenance items, on the theory that these items should be "added back" to the property's value as they represent work that should have been performed by the Manager but was not.
Based on the Beacon Appraisal, MSH demands a total buyout price of $70,000,000, calculated as follows:
PCG notes that MSH's claimed bad-faith penalty of $16,975,000 purports to represent a 32% punitive adjustment applied to the value of MSH's redeemed interest. This figure exceeds the express contractual cap set forth in Section 12.7 of the Operating Agreement, which limits the penalty to "up to twenty-five percent (25%) of the determined Fair Market Value of the redeemed interest." PCG vigorously contests both the applicability of any bad-faith penalty and the mathematical basis for MSH's claimed penalty amount.
The resulting valuation gap between the parties is $28.7 million ($70,000,000 demanded by MSH minus $41,300,000 tendered by PCG).
PCG filed its Response and Counterclaim on April 5, 2023. In its Response, PCG denies each and every allegation of bad faith, breach of fiduciary duty, and breach of the maintenance obligation under Section 8.3. PCG's Counterclaim seeks a declaration from the Arbitrator that the buyout price of $41,300,000, as computed from the Whitfield Appraisal and tendered on March 1, 2023, constitutes the proper Fair Market Value of MSH's membership interest under Section 12.4 of the Operating Agreement. PCG submits that the Whitfield Appraisal was conducted by a qualified, independent MAI-certified appraiser utilizing industry-standard methodologies, and that the resulting valuation is a reasonable and defensible determination of the Property's Fair Market Value as of the relevant date.
III. ISSUES FOR ARBITRATION
PCG respectfully identifies the following issues to be resolved by the Arbitrator in this proceeding. PCG presents these issues for the Arbitrator's consideration in structuring the proceedings and anticipates that the parties may further refine the framing of the issues during the preliminary conference and through subsequent briefing.
A. Primary Valuation Issue
The central issue in this arbitration is:
What is the Fair Market Value of 100% of PGV's real property and operating assets as of December 31, 2022, for purposes of the call-option redemption under Section 12.4 of the Operating Agreement?
Resolution of this overarching question will require the Arbitrator to address the following sub-issues, among others:
(a) Appropriate Capitalization Rate and discount Rate: The Whitfield Appraisal applied a capitalization rate of 9.5% and a DCF discount rate of 10.75%, while the Beacon Appraisal applied a DCF discount rate of 8.5% and a terminal capitalization rate of 7.75%. The selection of these rates is a significant driver of the valuation divergence and will require the Arbitrator to evaluate the competing expert opinions on risk-adjusted rates of return for luxury hotel assets in the Florida Gulf Coast market.
(b) Proper Weighting of Valuation Approaches: The Whitfield Appraisal weighted the income approach at 40% and the sales comparison approach at 60%, while the Beacon Appraisal relied exclusively on the income approach (DCF) without any consideration of the sales comparison approach. The question of whether the sales comparison approach should be given weight—and, if so, how much—is a material point of contention between the parties' respective experts.
(c) Treatment of the Aurelian Franchise Agreement: The Beacon Appraisal includes an upward adjustment for the purported "below-market" value of the Aurelian franchise agreement. PCG disputes this adjustment on both methodological and contractual grounds and contends that the franchise agreement should be valued at its existing contractual terms, consistent with standard appraisal practice for going-concern hotel valuations.
(d) Treatment of Alleged Deferred-Maintenance Items: The Beacon Appraisal includes an upward adjustment of $8.2 million for alleged deferred-maintenance items. PCG disputes the factual and analytical basis for this adjustment, as discussed further in Section III.C below.
B. Bad-Faith Claim Under OA Section 12.7
A second significant issue is whether PCG exercised the call option "in bad faith or with the intent to materially understate Fair Market Value" within the meaning of Section 12.7 of the Operating Agreement. This provision is a contractual safeguard that establishes a heightened standard of conduct for the exercise of the call-option right, and it imposes a potential penalty if that standard is not met.
PCG emphatically denies that it acted in bad faith or with any intent to understate the Fair Market Value of PGV's assets. PCG retained a highly qualified, independent MAI-certified appraiser who employed industry-standard methodologies and arrived at a valuation conclusion that is well within the range of reasonable professional judgment. The mere fact that the parties' respective appraisers reached different conclusions does not establish bad faith; it reflects the inherent subjectivity involved in the appraisal of complex commercial real estate assets.
To the extent the Arbitrator determines that any penalty is warranted under Section 12.7—which PCG firmly believes is not the case—the Arbitrator will need to determine the applicable penalty amount. PCG notes that Section 12.7 expressly caps the penalty at "up to twenty-five percent (25%) of the determined Fair Market Value of the redeemed interest." MSH's claimed penalty of $16,975,000 appears to represent a 32% punitive adjustment, which would exceed the contractual cap on its face. PCG disputes both the applicability and the amount of any penalty and reserves the right to present evidence and argument on this issue at the appropriate stage of the proceedings.
C. Deferred Maintenance Claim Under OA Section 8.3
MSH's third claim alleges that PCG, in its capacity as Manager of PGV, breached Section 8.3 of the Operating Agreement by failing to maintain the Property in "first-class condition." Specifically, MSH contends that PCG failed to fund $8.2 million in deferred-maintenance items, including alleged deficiencies in the Hotel's HVAC systems, roofing, exterior facades, and certain common-area finishes. MSH contends that these deferred items artificially depressed the Property's appraised value and that the valuation should be adjusted upward by $8.2 million to account for work that should have been performed.
PCG disputes this claim on multiple grounds. PCG, as Manager, has diligently maintained the Property in accordance with its obligations under the Operating Agreement and has implemented a comprehensive capital expenditure program that has kept the Hotel in excellent condition. PCG intends to present evidence at the hearing demonstrating that the alleged deferred-maintenance items identified by MSH are either (a) items that have already been addressed, (b) items that are the subject of budgeted future capital expenditures that were approved through the ordinary course of PGV's annual budgeting process, or (c) items that do not constitute "deferred maintenance" within the meaning of Section 8.3 and industry norms for luxury hotel properties.
The resolution of this issue will require the Arbitrator to determine whether PCG breached Section 8.3, and if so, whether any such breach warrants a valuation adjustment in the amount of $8.2 million or any other amount.
D. Preferred Return Calculation
PCG believes that the parties are in substantial agreement regarding the calculation of MSH's accrued preferred return. Under Sections 4.1 and 5.2 of the Operating Agreement, each member is entitled to a cumulative, compounding preferred return of 8% per annum on its total capital contributions. PCG has calculated MSH's accrued preferred return as $17,010,000, based on 8% annual compounding on MSH's total capital contributions of $18,505,000 ($10,000,000 in acquisition equity plus $8,505,000 in renovation capital) from August 1, 2017 through December 31, 2022.
PCG notes that MSH's Demand for Arbitration does not appear to dispute this calculation, and MSH's own computation of its demanded buyout price includes the same $17,010,000 preferred-return figure. Nevertheless, PCG proposes that the parties formally stipulate to this figure, subject to verification with Grantham, Pryce & Associates CPAs, PCG's accountants, to eliminate this item as a potential source of dispute. To the extent any discrepancy exists, PCG is prepared to work with MSH's financial advisors to reconcile the calculation promptly.
E. PCG's Counterclaim
PCG's Counterclaim, filed on April 5, 2023, seeks a declaration from the Arbitrator that the buyout price of $41,300,000 tendered by PCG on March 1, 2023 constitutes the proper Fair Market Value of MSH's 35% membership interest in PGV, as determined in accordance with Section 12.4 of the Operating Agreement. This declaratory relief is sought as an affirmative matter and will be resolved through the same evidentiary proceedings that address MSH's claims. The Counterclaim is logically intertwined with the primary valuation issue identified in Section III.A above, and PCG anticipates that the Arbitrator's resolution of the FMV question will effectively dispose of the Counterclaim as well.
IV. APPOINTMENT OF NEUTRAL THIRD APPRAISER UNDER OA SECTION 12.4(c)
PCG respectfully brings to the Arbitrator's attention the provisions of Section 12.4(c) of the Operating Agreement, which establishes a mechanism for the appointment of a neutral third appraiser in the event that the parties' respective appraisals diverge by more than a specified threshold. Section 12.4(c) provides, in relevant part:
"In the event that the appraisals obtained by the Manager and the Non-Managing Member diverge by more than ten percent (10%), the parties shall jointly select a third MAI-certified appraiser to conduct an independent appraisal. The Fair Market Value shall then be determined as the average of the two appraisals that are closest in value."
The divergence between the Whitfield Appraisal ($118.0 million) and the Beacon Appraisal ($151.5 million) is $33.5 million, which represents a variance of approximately 28.4%, calculated as follows:
($151,500,000 − $118,000,000) ÷ $118,000,000 = 28.4%
This divergence clearly and substantially exceeds the 10% threshold specified in Section 12.4(c), thereby triggering the parties' contractual obligation to jointly select and retain a neutral third MAI-certified appraiser.
PCG therefore respectfully requests that the Arbitrator direct the parties to jointly select a neutral third MAI-certified appraiser in accordance with Section 12.4(c) of the Operating Agreement. In furtherance of this request, PCG proposes the following framework:
(a) Timeline for Selection: The parties should confer and identify a mutually acceptable neutral appraiser within fourteen (14) days of the preliminary conference (i.e., by May 30, 2023). If the parties are unable to agree on a neutral appraiser within this period, PCG requests that the Arbitrator appoint one from a list of qualified candidates to be submitted by each party.
(b) Target Completion Date: The neutral appraiser should be given a target of sixty (60) days from retention to complete its appraisal, with a preliminary indication of value to be provided at approximately the midpoint of the engagement.
(c) Cost Allocation: The costs of the neutral appraiser should be shared equally between PCG and MSH, consistent with the equitable principles underlying the contractual mechanism.
(d) Valuation Date: The valuation date for the neutral appraisal should be December 31, 2022, consistent with the valuation dates used in both the Whitfield and Beacon appraisals.
(e) Scope: The scope of the neutral appraisal should encompass 100% of PGV's real property and operating assets, including the Hotel, its FF&E, and the going-concern value of the hotel operations, consistent with the scope of the Whitfield and Beacon appraisals.
PCG submits that the prompt appointment of a neutral third appraiser is critical to the efficient progression of this arbitration. The neutral appraisal will provide an independent data point that may substantially narrow the valuation gap between the parties and may facilitate resolution of this matter without the need for a full evidentiary hearing on the valuation issue.
V. ANTICIPATED EXPERT WITNESSES
PCG provides the following information regarding the expert witnesses it anticipates designating in this proceeding, as well as its understanding of MSH's anticipated expert witnesses, for the Arbitrator's consideration in scheduling the proceedings.
A. PCG's Expert(s)
PCG intends to designate the following expert witness:
Gerald K. Whitfield, MAI Whitfield Realty Advisors LLC 500 East Broward Boulevard, Suite 900 Fort Lauderdale, Florida 33394
Subject Matter: Mr. Whitfield will testify regarding his determination of the Fair Market Value of The Palmetto Grand Resort & Spa and PGV's operating assets as of December 31, 2022. His testimony will address his appraisal methodology, including the application of the income approach (direct capitalization at a 9.5% capitalization rate and discounted cash flow analysis at a 10.75% discount rate) and the sales comparison approach, as well as the rationale for weighting these approaches at 40% and 60%, respectively. Mr. Whitfield will also testify regarding prevailing market conditions for luxury hotel assets along the Florida Gulf Coast and in the broader Southeastern United States, including relevant comparable sales, operating metrics, and investor return expectations.
Qualifications: Mr. Whitfield holds the MAI designation from the Appraisal Institute, the premier professional designation in commercial real estate appraisal. He has over twenty-five years of experience in the valuation of commercial real estate, with a particular focus on hotel and resort properties in the State of Florida. He has been qualified as an expert witness in numerous proceedings before state and federal courts and arbitration tribunals.
PCG reserves the right to designate additional expert witnesses as discovery progresses and the issues in dispute are further defined. Without limitation, PCG may retain and designate experts in the following areas: (i) hospitality operations and management, to address MSH's claims regarding the Hotel's management and operational performance; (ii) capital expenditure practices and property maintenance standards for luxury hotel properties, to address MSH's deferred-maintenance claims under Section 8.3 of the Operating Agreement; and (iii) the economics of the franchise agreement with Aurelian Hotels & Resorts Inc., to address any claims regarding the purported "below-market" value of the franchise terms. PCG will provide timely disclosure of any additional expert designations in accordance with the scheduling order entered by the Arbitrator.
B. MSH's Anticipated Expert(s)
Based on the materials filed by MSH to date, PCG understands that MSH intends to designate the following expert witness:
Dr. Priya Ramanathan, CFA, ASA Beacon Valuation Group Inc. 2600 South Bayshore Drive, Suite 1050 Miami, Florida 33133
PCG understands that Dr. Ramanathan will testify in support of the Beacon Appraisal and MSH's contention that the Fair Market Value of PGV's assets is $151.5 million.
PCG further anticipates that MSH may designate one or more additional experts to address the deferred-maintenance and capital expenditure issues raised in MSH's Claim 3. PCG requests that the Arbitrator establish a deadline for expert designations and disclosures as part of the scheduling order.
C. Neutral Third Appraiser
As discussed in Section IV above, PCG has requested that the Arbitrator direct the parties to jointly retain a neutral third MAI-certified appraiser pursuant to Section 12.4(c) of the Operating Agreement. The neutral appraiser will serve as an independent expert whose conclusions will be relevant to the Arbitrator's determination of Fair Market Value. The neutral appraiser's role is distinct from that of the parties' retained experts; the neutral appraiser will provide an independent valuation without regard to the positions advanced by either party. PCG anticipates that the neutral appraiser's report will be a significant piece of evidence in the proceedings.
VI. PROPOSED DISCOVERY SCHEDULE
PCG recognizes the importance of establishing a clear and reasonable discovery schedule at the outset of these proceedings. To that end, PCG proposes the following schedule, which is designed to ensure that the parties and the Arbitrator have access to all relevant evidence while minimizing unnecessary delay and expense. This proposed schedule is subject to modification by the Arbitrator and by agreement of the parties.
PCG offers the following observations and requests regarding the scope and conduct of discovery:
Proportionality. PCG respectfully submits that the scope of discovery in this proceeding should be proportional to the amounts in controversy and the issues actually in dispute. The gap between the parties' positions is $28.7 million. While this is a substantial sum, the issues in dispute are relatively focused: the Fair Market Value of a single hotel property and its associated operations, the existence or non-existence of bad faith, and the adequacy of property maintenance. PCG requests that the Arbitrator keep these parameters in mind when ruling on discovery disputes.
Scope Limitations. PCG requests that the Arbitrator limit document requests to materials directly relevant to the valuation issues, the bad-faith claim under Section 12.7, and the deferred-maintenance claim under Section 8.3. PCG anticipates that MSH may seek broad discovery into PCG's internal business records, including records of PCG's other investments and operations that are unrelated to PGV and the Hotel. Such requests would be unduly burdensome and disproportionate to the needs of the case, and PCG respectfully requests that the Arbitrator deny any such requests. Discovery should be focused on PGV's financial and operational records, the appraisals and their underlying data, the Hotel's maintenance and capital expenditure records, and communications between the parties regarding the call-option exercise and valuation process.
Cooperation. PCG is committed to conducting discovery in a cooperative and efficient manner and will work in good faith with MSH's counsel to resolve discovery disputes informally before bringing any matters to the Arbitrator's attention.
VII. PROPOSED PROCEDURAL RULES AND HEARING LOGISTICS
A. Governing Rules
This arbitration is governed by the JAMS Comprehensive Arbitration Rules & Procedures, as specified in Section 15.2 of the Operating Agreement. The seat of the arbitration is Jacksonville, Florida, as mandated by Section 15.2. The substantive law governing the parties' rights and obligations is the law of the State of Florida, including the Florida Revised Limited Liability Company Act, Chapter 605, Florida Statutes, and applicable provisions of Florida contract law regarding the interpretation and enforcement of the Operating Agreement.
B. Hearing Format
PCG proposes that the evidentiary hearing be conducted over a period of no more than five (5) hearing days, with each side receiving an equal allocation of time for the presentation of evidence, including direct and cross-examination of witnesses, and opening and closing statements. PCG believes that five hearing days should be sufficient to present the evidence on all issues in dispute, given the relatively focused nature of the claims and counterclaims.
PCG proposes that the hearing be held at the JAMS Jacksonville Resolution Center, located at 1 Independent Drive, Suite 1600, Jacksonville, Florida 32202, consistent with the contractual seat of the arbitration.
PCG is amenable to hybrid hearing procedures to the extent that such procedures would promote efficiency and convenience without prejudicing either party's right to present its case effectively. For example, PCG would not object to the remote testimony of certain witnesses via videoconference, particularly out-of-state expert witnesses or fact witnesses whose testimony is limited in scope, provided that appropriate safeguards are in place to ensure the integrity of the testimony and the ability of counsel and the Arbitrator to observe the witness's demeanor.
C. Confidentiality
PCG respectfully requests that the Arbitrator enter a confidentiality order governing the treatment of sensitive information produced or disclosed during the course of these proceedings. The financial nature of this dispute will necessarily require the production and examination of proprietary financial information, including PGV's internal financial statements, operating budgets, capital expenditure plans, and projections; the appraisal reports and their supporting workpapers; internal business records of both PCG and MSH; and any settlement discussions that may occur during the proceedings.
PCG notes that the Operating Agreement does not contain an express provision requiring confidentiality in arbitration proceedings. However, PCG submits that the financial nature of the dispute, the involvement of proprietary hotel operating data, the sensitivity of the franchise relationship with Aurelian Hotels & Resorts Inc., and the potential impact of public disclosure on the Hotel's competitive position all weigh strongly in favor of a protective order. PCG proposes that the confidentiality order include provisions for the designation of documents and testimony as "Confidential" or "Highly Confidential — Attorneys' Eyes Only," with appropriate restrictions on the use and dissemination of designated materials.
D. Pre-Hearing Submissions
PCG proposes that the parties exchange pre-hearing briefs and exhibit lists at least twenty-one (21) days before the commencement of the evidentiary hearing. Objections to exhibits and motions in limine should be due no later than fourteen (14) days before the hearing, with responses due seven (7) days before the hearing. This schedule will allow the Arbitrator adequate time to rule on any pre-hearing disputes and will ensure that both parties are fully prepared for the presentation of evidence.
PCG further proposes that the parties exchange witness lists, including a brief summary of the anticipated testimony of each witness, at the same time as the pre-hearing briefs. This will facilitate the efficient allocation of hearing time and minimize the risk of surprise at the hearing.
VIII. OTHER MATTERS FOR THE PRELIMINARY CONFERENCE
PCG raises the following additional matters for the Arbitrator's consideration at the May 15, 2023 preliminary conference.
A. Bifurcation
PCG respectfully requests that the Arbitrator consider whether the bad-faith claim asserted by MSH under Section 12.7 of the Operating Agreement should be bifurcated from the primary valuation determination. PCG submits that bifurcation would serve the interests of efficiency and fairness for several reasons.
The penalty analysis under Section 12.7 is contingent upon a threshold finding of bad faith. The question of whether PCG acted "in bad faith or with the intent to materially understate Fair Market Value" is analytically distinct from the question of what the Fair Market Value of PGV's assets actually is. The bad-faith inquiry focuses on PCG's subjective intent and conduct, whereas the valuation inquiry is an objective determination of property value based on market data and expert analysis. These two inquiries involve different legal standards, different evidentiary considerations, and potentially different witnesses.
Bifurcation would promote efficiency because, if the Arbitrator determines that PCG did not act in bad faith—as PCG firmly believes the evidence will establish—the $16,975,000 penalty claim would be eliminated entirely. This would remove a significant source of complexity from the proceedings and would allow the Arbitrator and the parties to focus their resources on the core valuation dispute. Conversely, if the bad-faith and valuation issues are tried together, the proceedings will be complicated by the injection of intent-based evidence and argument into what would otherwise be a straightforward appraisal dispute.
PCG recognizes that the Arbitrator has broad discretion in organizing the proceedings and welcomes the Arbitrator's views on this issue at the preliminary conference.
B. Mediation
PCG is open to mediation at an appropriate juncture in these proceedings. PCG believes that mediation is most likely to be productive after the neutral third appraiser has provided its preliminary indication of value. At that point, the parties will have the benefit of three independent appraisals—the Whitfield Appraisal, the Beacon Appraisal, and the neutral appraisal—which may substantially narrow the range of dispute and provide a more informed basis for settlement discussions.
PCG suggests that the parties revisit the question of mediation after the neutral appraiser's preliminary indication of value is received, which PCG estimates will be available by mid-July 2023. If the parties mutually agree that mediation would be beneficial at that stage, PCG is prepared to participate in a mediation session before a JAMS mediator or another mutually acceptable neutral.
C. Stipulations
In the interest of narrowing the issues in dispute and promoting the efficient use of the Arbitrator's and the parties' time, PCG proposes that the parties attempt to stipulate to certain facts and figures that PCG believes are undisputed or capable of prompt verification. Specifically, PCG proposes stipulations regarding the following:
(a) The valuation date of December 31, 2022;
(b) The outstanding debt balance of $48,600,000 owed to Gulf Atlantic National Bank as of December 31, 2022;
(c) MSH's total capital contributions of $18,505,000, consisting of $10,000,000 in acquisition equity and $8,505,000 in renovation capital;
(d) The accrued preferred return of $17,010,000 owed to MSH under Sections 4.1 and 5.2 of the Operating Agreement, subject to verification with Grantham, Pryce & Associates CPAs, PCG's accountants;
(e) The Hotel's 2022 financial performance, including total revenue of $62.8 million, Net Operating Income of $18.4 million, and hotel-level EBITDA of $19.7 million;
(f) The basic terms of the Gulf Atlantic National Bank loan (Loan No. CRE-2017-06284; interest rate of SOFR + 2.25%; maturity date of August 1, 2027).
PCG anticipates that MSH may be willing to stipulate to these items, as they appear to be largely uncontested based on MSH's own filings. Establishing these stipulations early in the proceedings will allow both parties and their experts to focus on the genuinely disputed issues, particularly the appropriate valuation methodology, cap rates and discount rates, and the factual predicates for the bad-faith and deferred-maintenance claims.
D. Insurance Matters
PCG notes for the record that it has tendered the defense of MSH's claims in this arbitration to its managers' liability insurer, Atlantic Omnivrel Insurance Company, under Policy No. AFML-2022-08745. The policy provides coverage of $10 million per occurrence and $10 million in the aggregate. Atlantic Fidelity has agreed to fund PCG's defense costs under a reservation of rights. The reservation of rights pertains to certain coverage questions that are not relevant to the merits of the arbitration.
This information is provided solely for the Arbitrator's administrative awareness. The existence of insurance coverage does not affect the scope of the proceedings, the substantive issues to be resolved, or the parties' respective rights and obligations under the Operating Agreement. PCG does not intend to inject insurance coverage issues into the arbitration, and PCG requests that the Arbitrator treat this disclosure as informational only.
IX. CONCLUSION
For the foregoing reasons, Respondent Pellegrino Capital Group LLC respectfully requests that the Arbitrator:
1. Set a procedural schedule for these proceedings consistent with the proposals set forth in Section VI of this Statement, or such other schedule as the Arbitrator deems appropriate in light of the parties' positions;
2. Direct the parties to jointly select and retain a neutral third MAI-certified appraiser pursuant to Section 12.4(c) of the Operating Agreement, with the selection to be completed within fourteen (14) days of the preliminary conference and the neutral appraisal to be completed within sixty (60) days of retention;
3. Address the procedural matters identified in Sections VII and VIII of this Statement, including the proposed hearing format, confidentiality protections, bifurcation of the bad-faith claim, and the parties' efforts to stipulate to undisputed facts; and
4. Grant such other and further relief as the Arbitrator deems just and appropriate.
PCG is prepared to proceed efficiently toward the resolution of this dispute. PCG remains committed to the arbitration process and to working cooperatively with MSH's counsel and the Arbitrator to ensure that these proceedings are conducted in a fair, orderly, and cost-effective manner.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Francesca Morano, Partner
Samuel Eklund, Partner Simone Laroche, Associate Jeffrey Park, Associate
801 Brickell Avenue, Suite 2800 Miami, Florida 33131 Telephone: (305) 555-7200 Facsimile: (305) 555-7201
Counsel for Respondent Pellegrino Capital Group LLC
Dated: May 12, 2023
CERTIFICATE OF SERVICE
I, Francesca Morano, hereby certify that on May 12, 2023, a true and correct copy of the foregoing Respondent Pellegrino Capital Group LLC's Preliminary Conference Statement was served upon counsel for Claimant Meridian Shores Hospitality LLC at the following address, by electronic mail and overnight courier:
Victoria Castillo, Partner Ryan Matsuda, Senior Associate Hargrove, Dunlap & Castillo LLP 1395 Brickell Avenue, Suite 3100 Miami, Florida 33131
________________________________________
Francesca Morano
Dated: May 12, 2023
MERIDIAN SHORES HOSPITALITY LLC,
Claimant,
v. | RESPONDENT PELLEGRINO CAPITAL GROUP LLC'S PRELIMINARY CONFERENCE STATEMENT
PELLEGRINO CAPITAL GROUP LLC,
Respondent.
Component | Amount
Gross Asset Value (100% FMV per Whitfield Appraisal) | $118,000,000
Less: Outstanding Debt (GANB Loan No. CRE-2017-06284) | ($48,600,000)
Joint Venture Net Equity | $69,400,000
MSH's 35% Share of Net Equity | $24,290,000
Plus: MSH's Accrued Preferred Return (8% cumulative compounding on $18,505,000 total capital contributions, August 1, 2017 through December 31, 2022) | $17,010,000
Total Tendered Buyout Price | $41,300,000
Component | Amount
MSH's 35% Share of Net Equity (based on $151.5M FMV less $48.6M debt = $102.9M × 35%) | $36,015,000
Plus: MSH's Accrued Preferred Return | $17,010,000
Plus: Bad-Faith Penalty (OA Section 12.7) | $16,975,000
Total Demanded by MSH | $70,000,000
Phase | Proposed Deadline
Joint selection of neutral third appraiser (OA § 12.4(c)) | May 30, 2023 (14 days after preliminary conference)
Initial document requests served by both parties | June 1, 2023
Interrogatories served by both parties | June 1, 2023
Responses to initial document requests | July 1, 2023
Responses to interrogatories | July 1, 2023
Neutral appraiser's preliminary indication of value | Mid-July 2023
Completion of document production | August 22, 2023
Expert depositions | September 2023
Party depositions (fact witnesses) | October 2023
Expert reports exchanged | November 2023
Rebuttal expert reports exchanged | December 2023
Pre-hearing briefs filed | January 2024
Evidentiary hearing | February–March 2024