Cleveland Intenatl. Fund-Med. Mart v. Optima 777, L.L.C.

[Cite as Cleveland Intenatl. Fund-Med. Mart v. Optima 777, L.L.C., 2023-Ohio-715.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
CLEVELAND INTERNATIONAL
FUND MEDICAL MART, ET AL., :
Plaintiff-Appellee, :
No. 111616
v. :
OPTIMA 777, LLC, ET AL., :
Defendant-Appellant. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: March 9, 2023
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. CV-20-938197
Appearances:
Thrasher, Dinsmore & Dolan, LPA, Ezio A. Listati, and
Elizabeth E. Collins, for appellee Tim L. Collins.
Ulmer & Berne LLP, Amanda Martinsek, and Gregory C.
Djordjevic, for appellees Cleveland International Fund
and the Huntington National Bank.
Buckley King LPA, David A. Kunselman, and Steven J.
Miller, for appellant.
MARY EILEEN KILBANE, J.:
Defendant-appellant Optima 777, LLC, (“Optima”) appeals from the
trial court’s June 9, 2022 order that authorized the Receiver, Tim L. Collins,
(“Collins” or “Receiver”) to sell substantially all of Optima’s assets and to assume
and assign select contracts. The primary asset involved in the sale was the
Cleveland Westin Hotel (“Westin” or “hotel” or “property”). For the following
reasons, we affirm the lower court’s ruling.
Factual and Procedural History
In 2011, Optima borrowed $36 million through a complex bond
transaction from plaintiffs-appellees Cleveland International Fund-Medical Mart
Hotel, Ltd. (“CIF-MM”) to refurbish and renovate the Westin. The parties executed
forbearance agreements in February 2019, September 2019, and June 2020.
On October 2, 2020, pursuant to Optima’s default on the bond
transaction and forbearance agreements, CIF-MM and the Huntington National
Bank filed a complaint naming as defendants Optima, Cleveland-Cuyahoga County
Port Authority, the city of Cleveland, and the county of Cuyahoga.1 Generally, CIF-
MM sought repayment on the bonds and note guaranteed by the Westin. On
1 This appeal concerns only CIF-MM and Optima and, therefore, we will not address
the other parties’ allegations and defenses.
December 31, 2020, Optima filed an answer and counterclaim, and Optima
subsequently filed a supplemental, restated, and amended counterclaim.
On March 8, 2021, CIF-MM filed an emergency motion of
appointment of a receiver over Optima and the hotel. CIF-MM argued (1) the hotel
was in imminent danger of closing because Optima lacked sufficient funds to
continue operations; (2) Optima owed over $1.5 million in delinquent property
taxes and almost $1 million on a loan to the city of Cleveland; (3) the hotel was
operating at a deficit and had fallen into a state of disrepair; and (4) Optima’s
principal was under investigation by the Department of Justice for money
laundering. CIF-MM further argued a $6 million infusion of capital was necessary
to prevent the immediate closing of the hotel, and it secured debt financing for that
amount contingent upon the trial court’s appointment of a receiver. On March 12,
2021, Optima opposed the appointment of a receiver. A hearing was held, and on
March 18, 2021, the trial court issued an order finding that it was necessary and
appropriate to appoint a receiver.
The trial court appointed Collins as the receiver. Collins held weekly
management/owner meetings where financial and operational reports were
provided. Participants at those meetings included Collins, representatives of CIF-
MM and Sage Hospitality — Westin’s management company in charge of the
Westin’s operations — and Optima’s titled owner but not its litigation counsel.
Collins’s first responsibility as receiver was to ascertain the market
value of the hotel. Collins obtained property valuation and marketing proposals
from five experienced hotel brokers. The proposals were prepared between March
and May 2021, ranged in value from $37.5 million to $47.5 million, and offered
various marketing strategies. Collins received input from representatives of CIF-
MM, Sage Hospitality, and Optima, and he concluded a targeted sale rather than a
public sale was the best option.
Based upon the submitted proposals, Collins selected CBRE as the
broker to market and facilitate the sale of the hotel. Collins considered CBRE the
largest and most sophisticated commercial real estate company in the United
States, with the best connections. Additionally, CBRE had a hotel group that
specialized in hotel sales. Collins executed a listing agreement with CBRE on July
14, 2021, and the parties promptly initiated a marketing plan. CBRE listed the
Westin in its book of sales for the July 26, 2021 America’s Lodging Investment
Summit in Los Angeles — the largest hotel investment conference in the world.
To facilitate the sale of the property, Collins opted for a stalking horse
contract. A stalking horse contract encompasses an initial bid by a purchaser — the
stalking horse purchaser — who sets the minimum bid that other prospective
bidders must exceed or best to acquire the assets being sold. The sale was subject
to bidding and sale procedures incorporated into the stalking horse contract.
Collins testified that he preferred a stalking horse contract for the Westin because
it guaranteed a minimum, material offer for the hotel while he and CBRE continued
to solicit higher and better offers. Collins also testified that the stalking horse
contract and its associated minimum bid were preferred because the hospitality
industry was negatively impacted by the Covid-19 pandemic, the duration of that
economic downturn was unknown, and astonishingly Cleveland was not a
destination location that generated significant tourism.
Collins negotiated a Sale and Purchasing Agreement, herein
referenced as a stalking horse contract, between CIF-MM and HEI Hospitality
Management, LLC (“HEI” or “Stalking Horse Purchaser”) whereby HEI, as the
stalking horse purchaser, pledged to purchase the hotel, subject to the contract’s
terms and conditions, for the price of $39.6 million. In consideration of HEI’s
agreement to act as the stalking horse purchaser and provide a minimum purchase
price for the hotel, the stalking horse contract incorporated bid protections for HEI.
In conjunction with the CBRE Listing Agreement and the stalking
horse contract, CBRE sent emails to 640 targeted prospective purchasers about the
sale. In response, 240 emails were opened, and 60 entities indicated their interest
as potential bidders. Those 60 entities signed nondisclosure agreements that
granted them access to CBRE’s managed data room — a database fully populated
with confidential information regarding the financial and physical condition of the
Westin. Of those 60 entities, 24 indicated interest in purchasing the Westin.
On August 9, 2021, Collins filed a motion stating the stalking horse
contract, bidding procedures, and CBRE Listing Agreement met the requirements
of R.C. 2735.04(D) and sought the trial court’s approval of the agreements. On
August 27, 2021, Collins filed an expedited motion to approve the agreements. On
September 14, 2021, Optima opposed CIF-MM’s motion to approve the three
documents and filed Matthew Wilk’s (“Wilk”) expert report in support of its
position. On September 17, 2021, CIF-MM filed with the court M. Colette Gibbons’s
(“Gibbons”) expert report in support of its motion to approve the agreements.2 On
September 20, 2o21, the trial court held a hearing on the pending motion and, on
the next day, granted Collins’s motion to approve the stalking horse contract, CBRE
Listing Agreement, and bidding procedures. In accordance with the agreements,
bids were due on September 24, 2021.
On September 23, 2021, non-party BCG Land Company (“BCG”)
filed an emergency motion to participate in the bidding process; the court granted
the motion on September 30, 2021. On that same date, the trial court extended the
deadline for the submission of competing bids to October 1, 2021, and all related
dates in the bidding procedure accordingly. By October 1, 2021, four sophisticated
hotel companies, including HEI, had demonstrated their interest to purchase the
Westin and provided documentation that established they were able to finance the
purchase of the Westin and manage the operations of Westin should they
successfully acquire the hotel.
On October 21, 2021, Optima filed a notice of appeal in Cleveland
Internatl. Fund Med. v. Optima 777, LLC, 8th Dist. Cuyahoga No. 110930
(“Optima’s first appeal”), pursuant to the trial court’s approval of the stalking horse
contract, CBRE Listing Agreement, and bidding procedures. Despite the filing of
2 Gibbons’s rebuttal expert report dated May 18, 2022, was also subsequently
submitted to the trial court.
Optima’s first appeal, Collins filed on October 26, 2021, a motion for an order
approving the terms and conditions of the stalking horse contract and related
agreements, and on November 9, 2021, Optima filed a brief in opposition to that
motion. On November 15, 2021, the trial court held CIF-MM’s motion in abeyance
until resolution of the pending appeal.
On December 2, 2021, in Optima’s first appeal, this court found that
(1) the trial court’s order approving the stalking horse contract and related
agreements was an interim order as to the procedure to be followed when
conducting the sale, and (2) the order did not foreclose Optima’s future right to
appeal the sale of the hotel. Thus, this court dismissed Optima’s appeal for lack of
a final appealable order. The Ohio Supreme Court denied jurisdiction of the case
in Cleveland Internatl. Fund Med. Mart Hotel v. Optima 777, L.L.C., 165 Ohio St.3d
1542, 2022-Ohio-397, 180 N.E.3d 1176. On April 11, 2022, the trial court reinstated
the case on its active docket.
On May 23, 2022, the trial court held a hearing on Collins’s motion
for an order authorizing him to sell the Westin to HEI. The written declarations of
Optima’s expert witness, Wilk, and the expert reports of CIF-MM’s expert witness,
Gibbons, were admitted into evidence without objection, and Collins presented
testimony. Collins testified to his receipt of broker valuations for the Westin
ranging in value from $37.5 million to $47.5 million, his evaluation of marketing
plans for the Westin, and his execution of the CBRE Listing Agreement, the stalking
horse contract, and the bidding procedures. Collins further testified that pursuant
to the stalking horse contract, each bid had to exceed HEI’s bid by $1.1 million for
a minimum bid of $40.7 million. This amount fell within the broker’s valuations of
the property that were in the range of $37.5 million to $47.5 million. Collins stated
that bidders had to assume a state energy loan and a city of Cleveland loan
associated with the hotel, that amounted to $2,747,000. Collins stated that HEI
was not obligated to increase the terms of its offer. Collins testified that bids were
presented by BCG, Schulte, and HEI.
Collins testified that BCG presented a bid that did not comply with
the stalking horse contract. Despite Collins’s attempts to ensure compliance with
the bidding procedures, BCG’s bid was never brought up to compliance. Collins
also testified he had reservations about BCG’s ability or willingness to close the deal
since the company recently had not closed another hotel deal in the Cleveland
market. Collins testified that Schulte offered $40.7 million but requested
representations and warranties standard in the commercial real estate setting but
not offered in the stalking horse contract. Collins communicated with Schulte but
was unable to reach an agreed resolution. Once the bids from BCG and Schulte
were no longer viable options, HEI offered to purchase the hotel at $39.6 million.
Collins countered the offer and HEI presented a cash offer of $40.2 million, plus
assumption of the two outstanding loans on the property, resulting in a deal worth
$42,947,000. Based upon HEI’s cash offer that was within the brokers’ original
range of valuations, HEI’s ability to capitalize the deal, and HEI’s ability to assume
hotel operations, Collins concluded HEI was the appropriate purchaser and filed a
motion with the trial court seeking authority to sell the property to HEI.
On June 8, 2022, the trial court conducted a related hearing to
discuss the redemption amount and redemption period that would apply upon an
issuance of a sale order. On June 9, 2022, the trial court issued an order authorizing
Collins to sell substantially all of Optima’s assets and to assume and assign certain
contracts.
On June 10, 2022, Optima filed the following motions: motion for
24-hour extension of the redemption deadline; motion to stay execution of the sale
pending appeal; and the instant appeal pursuant to the trial court’s June 9, 2022
order that authorized the receiver to sell substantially all of Optima’s assets and
assume and assign certain contracts. On June 13, 2022, the trial court denied
Optima’s motion to extend the redemption deadline, and on June 14, 2022, it
denied Optima’s motion to stay execution of the sale order.
On June 15, 2022, in this court, Optima filed an emergency motion
to stay the sale order, including the date of redemption. On that same date, this
court granted Optima’s emergency motion to stay that would become effective upon
the posting of a supersedeas bond. At no time did Optima file a supersedeas bond.3
Optima’s appeal presents a single assignment of error for our review:
Assignment of Error I: The Trial Court committed reversible error in
issuing a Journal Entry authorizing the Appellee-Receiver to sell
substantially all of Appellant’s assets and assign certain contracts.
Legal Analysis
In its sole assignment of error, Optima argues the trial court’s June
9, 2022 journal entry that authorized Collins to sell substantially all of Optima’s
assets and assign certain contracts constituted reversible error. Specifically,
Optima argues that the sale did not maximize the property to the receivership estate
and the sale was not reasonable under the circumstances.
In accordance with Ohio’s receivership statutes, trial courts must
demonstrate sound judicial discretion in their oversight of a receivership. State ex
rel. Yost v. Summer Rays, Inc., 10th Dist. Franklin Nos. 18AP-929 and 19AP-133,
2019-Ohio-3907, ¶ 11, citing State ex rel. Celebrezze v. Gibbs, 60 Ohio St.3d 69, 74,
573 N.E.2d 62 (1991). R.C. 2735.04 specifies the powers of a receiver, including the
sale of real property. With court approval and supervision,
a receiver may sell property free and clear of liens by private sale
pursuant to a written contract between the receiver and the prospective
3On June 15, 2022, Optima filed a motion for emergency stay and notice of appeal
with the Ohio Supreme Court in Optima 777, L.L.C. v. Collins, 167 Ohio St.3d 1409, 2022-
Ohio-2083, 188 N.E.3d 1105. On June 21, 2022, the Ohio Supreme Court denied the
motion for emergency stay for want of four votes. Id. On August 9, 2022, the Ohio Supreme
Court dismissed the appeal for failure to prosecute. Optima 777, L.L.C. v. Collins, 167 Ohio
St.3d 1477, 2022-Ohio-2743, 192 N.E.3d 499.
purchaser, by private auction, by public auction, or by any other
method that the court determines is fair to the owner of the property
and all other parties with an interest in the property, is reasonable
under the circumstances, and will maximize the return from the
property to the receivership estate, taking into account the potential
cost of holding and operating the property.
R.C. 2735.04(D)(1)(a).
We review a trial court’s order that approves a receiver’s sale of
property for an abuse of discretion. Yost at ¶ 12, citing Lucas v. Reywal Co., L.P.,
2019-Ohio-27, 118 N.E.3d 505, ¶ 19 (10th Dist.), citing Yidi, L.L.C. v. JHB Hotel,
L.L.C., 2017-Ohio-1285, 88 N.E.3d 534, ¶ 7 (8th Dist.). “‘Abuse of discretion will
not be found where the reviewing court simply could maintain a different opinion
were it deciding the issue de novo, but rather represents an attitude that is
unreasonable, arbitrary, or unconscionable.’” Yost at ¶ 11, quoting McGee v. C&S
Lounge, 108 Ohio App.3d 656, 659, 671 N.E.2d 589 (10th Dist.1996); Johnson v.
Abdullah, 166 Ohio St.3d 427, 2021-Ohio-3304, 187 N.E.3d 463.
A thorough review of the record demonstrates the trial court’s June
9, 2022 order authorizing and confirming the hotel’s sale maximized the return
from the property to the receivership estate and was reasonable. The hotel was
losing at a minimum $100,000 per month. While Optima argued continued
holding of the Westin — rather than its sale — would result in operational profit or
a higher sale price, the trial court did not find this argument compelling. The trial
court viewed Optima’s expert reports prepared by Wilk and CIF-MM’s expert
reports submitted by Gibbons in response to Wilk’s declarations. It was the trial
court’s role to determine the weight to be accorded those reports. Apicella v. PAF
Corp., 17 Ohio App.3d 245, 249, 479 N.E.2d 315 (8th Dist.1984), citing McKay
Machine Co. v. Rodman, 11 Ohio St. 2d 77, 82, 228 N.E.2d 304 (1967).
Further, Collins’s testimony detailed his approach to the sale and
marketing of the Westin and his decision to pursue a stalking horse contract with
HEI and a listing agreement with CBRE. Collins determined a stalking horse
contract with a committed purchaser was the best option in the post-Covid
hospitality industry. The final negotiated sale price was within the range of values
stated by the five brokers in the spring of 2021. Optima’s argument that the
valuations were stale, and the trial court was obligated to demand new appraisals
was unsupported by R.C. 2735.04. The statute did not require the trial court to seek
additional offers, but stated a court may require additional offers “if warranted by
the circumstances.” R.C. 2735.04(D)(1)(c). Based upon Collins’s methodical
approach to the marketing and sale of the Westin, the circumstances did not
indicate the need for additional offers. Additionally, the trial court provided the
parties regular opportunities to be heard throughout the duration of the case and
issued detailed journal entries demonstrating the court’s understanding of the
ongoing concerns. As stated by Gibbons in her initial report, a receiver does not act
as a Lone Ranger; Collins’s decision to pursue a stalking horse contract and the
ultimate sale transaction required the trial court’s approval and supervision. See
R.C. 2735.04(D)(1)(a). The trial court’s authorization to sell the hotel to HEI
satisfied the requirements of R.C. 2735.04(D)(1)(a) and did not demonstrate an
abuse of discretion.
Optima’s assignment of error is overruled.
Judgment affirmed.
It is ordered that appellee recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
common pleas court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
_________________________
MARY EILEEN KILBANE, JUDGE
EILEEN A. GALLAGHER, P.J., and
EILEEN T. GALLAGHER, J., CONCUR