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

2023 Ohio 715

• Court: Ohio Court of Appeals
• Decided: March 9, 2023
• Docket: 111616
• Status: Published

Opinion

[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