A Ferment of Finances : Winery: A feud over ownership of the Culbertson Winery in Temecula has produced a vicious rift between two of the county’s leading couples, and has proved an ongoing embarrassment to La Jolla society.

During that enchanted evening in the Grand Ballroom of the U.S. Grant Hotel, no one could have sensed the impending split between two of the most popular couples to grace La Jolla society.

Wealthy, powerful John M. and Sally B. Thornton were hosting one of the elite private parties of the social season: a sumptuous dinner, followed by the San Francisco Ballet’s production of “Sleeping Beauty”--a presentation underwritten by the Thorntons--at the Civic Theatre.

This, to celebrate their 35th wedding anniversary with 280 of their dearest friends on Oct. 2, 1990.

Even the most hardened socialites found the evening irresistible as they ate plate-size ravioli stuffed with forest mushrooms, roast veal chops, wild-rice pancakes, chocolate parfait.

For champagne, the Thorntons offered one label, the logical choice. Already 75% owners of the respected Culbertson Winery in Temecula, John Thornton asked his dear friends and vintners, John and Martha Culbertson, for four of their most prized vintages.

Among them, the Culbertsons provided a rare, 1986 sparkling wine, “Wedding Bouquet,” to complement the evening’s romantic theme.

Life didn’t get much better than this.

Yet five months later, the Thorntons would beckon the Culbertsons to their La Jolla mansion for what the Fallbrook couple expected to be a pro forma meeting of the board of directors of the Culbertson Winery Corp.

In short order, the Thorntons wielded their majority ownership of the winery in guillotine fashion. John Culbertson was summarily fired as president and director of the winery that bears his name. Wife Martha was fired as vice president and director.

The Culbertsons reeled at the notion that they could be kicked out of their own winery. But Thornton, who has a reputation as a man who cans chief executive officers with the ease of someone cutting in for a dance, was ever firm.

“I am taking over,” John Thornton pronounced, Sally at his side.

With that, one of San Diego’s most curious social and business relationships, an odd-couple kind of pairing between the high-finance, highbrow Thorntons and the dream-struck, dirt-under-your-fingernails Culbertsons, turned from champagne to vinegar.

The Culbertsons called it a case of conniving manipulation, of a gluttonously rich investor weaseling his way into the family winery so he could ultimately wrest control of it, claiming the Culbertson name and prestige for himself.

The Thorntons countered that it was a necessarily urgent and prudent move to salvage a business investment. They no longer were willing to stand by and watch winery funds--Thornton funds--ransacked by business partners for their personal use, they maintained.

And La Jolla’s social and philanthropic circle cringed in embarrassment, wary of taking sides as two of its favorite couples lunged for each other’s throats.

It has been a nasty, dirty, vindictive war, as grimy as the most bitter divorce.

Last month, both sides were ordered by a San Diego judge to resolve their differences through a court-sponsored mediation service. Like a divorce judge hoping the warring spouses would somehow reconcile, Superior Court Judge Robert J. O’Neill ordered a “cooling off” period to salvage a relationship trashed by lawsuits. And both couples are now uncharacteristically quiet, wary of the judge’s wrath.

A financial matchmaker brought the two couples together in 1986. The Culbertsons were looking for investors to expand their family business, and the Thorntons were among San Diego’s most successful venture capitalists.

The two couples previously had attended the same social and charity affairs. The affable Culbertsons were much in demand because of John’s champagne and Martha’s culinary skills, the more-proper Thorntons because of their social standing and checkbook. But until 1986, the local networking hadn’t yet linked them in a business venture.

“John Culbertson asked me if I could help him find maybe 10 or 20 people who would make an investment in his company,” recalled Bill Otterson, a retired executive who, as director of the Connect program at UC San Diego, was frequently marrying entrepreneurs to investors.

“A friend of mine wanted money, and here was a guy who’s got it,” Otterson recalled. “And John Thornton said, ‘Why don’t I do the whole thing?’ ”

It was Thornton’s preference, say those who know him, to dominate in any business affair, rather than serve as a rank-and-file investor.

At the time, the Culbertsons had established themselves as vintners of premier sparkling wines, which had won accolades and gold medals around the country and had already been poured at presidential inaugurals and state dinners at the White House. John Culbertson was, wine reviewers have noted, a consistent and accomplished artist when it came to blending Pinot noirs, Chardonnays and Pinot blancs.

His love affair with wine began as a hobby as he traveled the world.

Culbertson, 56, and wife Martha, 53, are San Diego products who attended San Diego State University; he was commissioned as a Navy officer specializing in bomb disposal, then parlayed that diving experience into a career as a commercial diver serving the offshore oil industry.

Twenty-five years ago, while working in Australia, Culbertson became smitten with its wines; when the couple moved to Singapore, they followed the readily available French wines and began self-schooling in the complex art of winemaking.

In 1972, the Culbertsons moved to Houston, which became headquarters for John’s underwater contracting business, Martech International.

“It’s an interesting business,” he said once, “but winemaking is more interesting.”

In Houston, Culbertson made his first wine--a sweet, fruity blend that he dismissed as junk and threw out. He began attending wine seminars, including at UC Davis.

The couple returned to San Diego County in 1976 to buy 27 acres in Fallbrook. Two years later, their Rancho Regalo del Mar was completed: an elegant, Spanish-style, red-tiled adobe home, nestled out of public view in the middle of an avocado grove.

John continued to commute to his corporate office in Houston while Martha, who had schooled under Julia Child and Jacques Pepin, opened her Fallbrook Grocery & Cafe, a small gourmet market and restaurant.

On weekends, John pursued his sparkling wines in the the more costly and time-consuming methode champenoise tradition--and entered a homemade wine competition at the 1979 Del Mar Fair with a champagne that received raves.

By then obsessed with winemaking, he opened his own John Culbertson Winery in 1981, converting a couple of buildings on the ranch into offices and a production area, complete with storage vaults tucked into a hillside. He planted his own Chardonnay vines, but bought most of his grapes from the San Luis Obispo area.

By 1983, Culbertson’s 1981 brut and natural champagnes were released and the winery’s walls were soon adorned with blue ribbons. And by 1986, the Culbertsons, flushed with the early success of the sparkling wines, looked to build a new winery in Southern California’s version of wine country, the rolling hills of Temecula, just inside Riverside County and just a few miles from the couple’s Fallbrook estate.

Enter the Thorntons, with their storied presence in San Diego’s business, social and philanthropic circles.

The son of a car salesman, John Thornton grew up in Long Beach buying and selling used bicycles and motor scooters. A take-charge dynamo even as a young man, he was elected student body president at Pomona College, where he graduated first in his class. He was commissioned as an officer in the Navy and added a patina of prestigious education to his natural entrepreneurial skills with an MBA from Harvard Business School.

He settled in San Diego with his wife, Sally, herself a local native and the daughter of the late Dr. Orlan Kellogg Bullard, a prominent San Diego dentist. A dominant figure in San Diego philanthropic and cultural circles since the early 1960s, Sally Thornton earned a master’s degree in history from the University of San Diego and wrote two books--one, on a pioneer architect, “Daring to Dream: The Life of Hazel Wood Waterman,” and another with a decidedly more narrow focus, “Funerary Practices in San Diego, 1820-1900.”

By age 33, John Thornton was president of Wavetek, a San Diego manufacturer of test and measurement instruments. The company’s annual sales increased during the next 20 years from $400,000 to $80 million. In 1985, Thornton resigned. He since has sold his 8% share of the company.

Today the Thorntons are the largest individual shareholders in five high-tech companies. An acknowledged “control person,” John Thornton, 59, exercises his stake and influence to call shots and help direct corporate strategy, but also credits his 57-year-old wife with giving him valuable advice.

The Thorntons own homes in both Point Loma and La Jolla--the latter previously occupied by the Maytags of appliance fame; they drive to stockholder meetings in a Rolls-Royce Silver Cloud, and are estimated to be worth more than $100 million.

“John can talk about art, about winemaking, about culture, about all kinds of things. At a party, he’d be in the middle, not dominant but not holding back,” business associate Mel Gafner said. His wife is described similarly.

For the Thorntons, cutting checks in five figures for charitable causes is routine philanthropy; their bigger donations fall along the lines of $5 million toward UC San Diego’s new general acute-care hospital and $1 million to the San Diego Museum of Art. They serve on boards of directors all around town.

The opportunity to invest in a winery fed nicely into the Thornton game plan. Here was a relatively high-risk start-up venture with great potential and a bouquet of romance.

For the Culbertsons, the Thorntons represented a clean package: a single investor who boasted of “deep pockets.”

After their introduction in 1986 as potential partners, the Culbertsons showed the Thorntons a projection that by 1987, the winery could make a $10,900 profit based on gross revenue of about $900,000, and that, by 1991, profits would exceed $400,000 on revenue of more than $2 million.

Within months, the Thorntons agreed to team up with the Culbertsons. And the Culbertsons, according to legal documents filed by the Thorntons, updated the financial projections with even rosier predictions. In 1987, they said, the winery would make nearly $80,000 in profit; by the end of 1990, taxable income should exceed $870,000.

By April, 1987, the Thorntons had written four checks totaling $400,000 toward the winery business, which was still being conducted out of the Culbertsons’ estate in Fallbrook. In exchange, the Thorntons were given 400 shares of non-voting, preferred stock, according to court documents.

As the husbands forged their working relationship, the two couples became a foursome on the social circuit. During the next 3 1/2 years, their partnership was a ferment of food and finances.

In July, 1987, for instance, the Thorntons hosted a dinner party for which the Culbertsons provided their “Blanc de Noirs” champagne for cocktail-hour toasts. Dinner featured truffled foie gras , pearl-gray caviar, lobster in mayonnaise.

A month later, John and Sally Thornton underwrote the La Jolla Playhouse production of “Hedda Gabler,” and the Culbertsons were among the 140 friends who beforehand enjoyed an outdoor brunch featuring New Orleans pain perdu and chicken-basil sausages.

Later that year, the Culbertsons said that $1.4 million was needed to construct the new winery operation in Temecula--but not to worry because a bank loan had been arranged. But, after being told later that the construction loan had been delayed, the Thorntons loaned nearly $2 million toward the project, according to court records.

In late 1987, Sally Thornton was chairwoman of the San Diego Museum of Art’s masked ball; Martha Culbertson served on her committee, and party-goers enjoyed roast venison and Montrachet cheese tart.

About the same time, the Thorntons were honored before 300 guests at the fourth annual “Spirit of Charity” ball at the Town and Country Hotel. They were brought onto the stage by then-Bishop Leo T. Maher of the Catholic Diocese of San Diego, while guests--including the Culbertsons--applauded generously.

By the end of 1987, the Thorntons might have begun wondering if the winery was evolving as their primary charity. The corporation reported a loss of $395,000--and the cost of building the complex escalated to $4.3 million.

To cover the expenses, the Culbertson Winery Corp. borrowed $4.3 million from Citibank, a loan that was backed personally by the Thorntons.

In January, 1988, members of the American Institute of Wine & Food were invited to a private peek at the visiting Chinese pandas at the San Diego Zoo, followed by a tour of “American Women Artists, 1830-1930” at the San Diego Museum of Art--a show the Thorntons had underwritten. Working in tandem, Martha Culbertson served a “British colonial luncheon” earlier in the day at the San Diego Wild Animal Park, and Sally Thornton oversaw the evening’s catered dinner, with its lobster dumpling soup and smoked duck breast.

In June, 1988, the $10-million winery opened in Temecula, complete with its Cafe Champagne, a gourmet restaurant with its own working herb garden.

Original plans called for a 40-unit bed-and-breakfast inn, including suites that would fetch $135 on weekend days. But for now, the chateau-style winery buildings feature a gift shop, a pay-per-glass champagne bar and champagne-making facilities that are open for public tours on weekends. Its large stone patio and surrounding grounds beckon wedding receptions or weekend jazz concerts under balmy evening skies. Vineyards give the front a wine-country look, although most of the champagne grapes are still bought from San Luis Obispo.

By the end of 1988, the Thorntons figured they had loaned $3 million to the winery in addition to backing the Citibank loan, court records show. In exchange, their non-voting stock was converted to a 75% ownership of the winery’s common stock, and the Thorntons found themselves majority owners. In that stock deal, the Culbertsons signed papers in which, they contend, they retained 50% of the proxy votes on matters of voting for directors of the board, thereby assuring themselves a place on that board.

Despite good reviews for its wines, Culbertson Winery Corp. wasn’t yet turning the financial corner. It lost $1.7 million in 1988 and $2.2 million in 1989.

Were the Thorntons complaining yet about financial indigestion? John Culbertson, in his legal documents, said no. Thornton, according to the Culbertson lawsuit, “was fully aware and acknowledged in his initial discussions with the Culbertsons that his investment in the winery business was to be a long-term investment, and that wineries are almost never profitable in the first few years of operation, or during a period of any significant expansion of production.”

Furthermore, Thornton repeatedly told the Culbertsons that “he was extremely wealthy, and often made the statement, ‘I have deep pockets. You can’t believe how deep my pockets are,’ ” according to the lawsuit.

In January, 1990, the Culbertsons co-chaired a March of Dimes fund-raiser, “Fete X Five,” that featured five of New York’s finest chefs, and the Thorntons were at their side. The five-course dinner began with smoked salmon tart and moved through shrimp in spiced carrot juice, rare saddle of lamb, hot cheeses, chilled greens and pastries.

The next month, John Culbertson told John Thornton to brace himself for a $673,000 winery loss that year. In fact, according to court papers, it would total $3.1 million.

Three months later, at the annual “Celebrities Cook for the UCSD Cancer Center,” Sally Thornton and Martha Culbertson teamed up at a booth where they handed out wedges of a cake of layered corn crepes and crisp duck. It was a very popular booth.

By the end of the year, the Thorntons simply established a line of Thornton credit for the winery’s disposal.

And in February, 1991, according to John Thornton’s legal papers, he got the call from the winery’s controller that signaled the beginning of the end of their social and business partnership.

“John,” the controller said, “I think we should meet. There are some things happening at the winery that I don’t think you’re aware of.”

MONDAY: The controller makes startling accusations about how the Culbertsons have been spending Thornton money. The partnership, and the harmony within La Jolla’s social circles, dissolves.