Corking a Maelstrom : Winery: A judge has ordered two socially prominent couples to settle their bitter legal battle over the acclaimed Culbertson Winery with the help of a mediator.
Champagne maker John Culbertson is no stranger to the pitfalls of his fickle business. Take that time in 1983 when the refrigeration units at his Fallbrook winery failed, causing hundreds of bottles of champagne to overheat and explode.
More than two-thirds of his entire 1983 bottling flowed into an avocado grove, leading Culbertson to remark later, “You’ve got to have deep pockets in this business.”
Culbertson thought he had found those deep pockets four years later, when he and his wife, Martha, brought John and Sally Thornton into the winery business as silent partners. Finally, the Culbertsons could relocate their home-grown winery to a resplendent new setting in Temecula’s wine country, while still maintaining the couple’s own personal winery in Fallbrook.
By 1991, the Thorntons--multimillionaires, philanthropists, social centerpieces--had invested more than $15 million in cash, loans and guarantees in the winery, enough to claim 75% stock ownership of the struggling business, according to their court papers.
Still, according to legal documents, the winery was losing money, like so much champagne pouring into an avocado grove.
Last February, according to the Thornton’s legal papers, the winery’s controller told the Thorntons he had located a leak in the winery coffers: the rag Culbertsons themselves.
The Culbertsons, the Thorntons alleged they learned, had taken $2 million from the winery, sometimes nickel-and-diming the corporation, sometimes writing themselves wholesale checks to bail themselves out of their own financial jams.
With that disclosure, the warmth of the Culbertson-Thornton union, built on shared social circles and money-making dreams, chilled quicker than a bottle of cuvee rouge on ice.
The Thorntons swiftly fired the Culbertsons in March, evicting them from the winery that bore their name.
The couple could stay on for two months as consultants, for $24,000, their former friends coolly informed them. They could sell their remaining shares to the Thorntons as a way to write off the debt, and promise, along with the Thorntons, not to “disparage, malign or otherwise communicate any adverse remarks” about each other or about the termination agreement.
The Culbertsons responded with equal hostility. Instead, last June 10, they sued to reclaim the winery as theirs. They were the victims, not the Thorntons, the Culbertsons claimed.
“Through a series of fraudulent transactions as well as coercive tactics, John M. Thornton has improperly seized control of the Culbertson Winery Corp.,” the Culbertson’s lawsuit alleged.
The Thorntons “were obviously monitoring the Culbertsons’ financial situation so that John M. Thornton would know when the Culbertsons were most vulnerable to his financial strong-arm tactics,” the Culbertson lawsuit reads.
And if that weren’t enough, the Culbertsons complained, the Thorntons now wanted a lien on the Culbertsons’ 27-acre estate in Fallbrook, the winery’s birthplace.
The Culbertsons had wanted to sell the house to finance their legal battle against the Thorntons. The attempt to place a lien on the property, John Culbertson said in a declaration, “is another example of John Thornton’s hardball tactics and an attempt to beat us into financial submission.”
The Thorntons “obviously were not satisfied in taking away our family business; now they want our family home as well,” John Culbertson said.
The Thorntons responded with their own lawsuit a month later, alleging that the Culbertsons had fraudulently induced them to invest in a losing operation.
The Culbertsons, the Thorntons alleged, had systematically looted the winery of more than $2 million in order to pay the mortgage on their Fallbrook ranch. Thus, the lien--that’s where they claimed much of their money was.
The warm embraces shared at the Thorntons’ 35th wedding anniversary in 1990, when the Culbertsons brought “Wedding Bouquet” champagne to mark the occasion, have been replaced by attorney-crafted barbs, their friendship gone flat.
Today, 11 months and seven volumes of legal papers after the blood-letting board meeting, the two couples have been ordered to work it out with a mediator.
It’s time to simmer down, Superior Court Judge Robert J. O’Neill said in his San Diego courtroom last month.
So for now, neither side talks publicly about this lawsuit that has torn their lives asunder. Attorney’s orders and all that.
“This is a horribly complicated, complex thing,” says John Thornton. “I feel very strongly about it, but that doesn’t enable me to talk about it.”
Said John Culbertson, who also declined comment: “The feelings are high on both sides . . . but we want to get this behind us.”
There is a lot to get past.
If the winery was in financial trouble, it was the Thorntons’ fault, the Culbertsons alleged. John Thornton, widely held as a savvy venture capitalist, decided on his own that the winery should expand its production and marketing efforts “although the Culbertsons warned him that to do so would require huge expenditures of funds, result in large debt service, and would not show a profit in return for several years,” the Culbertsons’ lawsuit alleged.
“Again, as he had done throughout the relationship, John M. Thornton represented that he had unlimited resources for the purposes of investing huge sums in the winery business, and that such loans were consistent with his long-range investment objectives,” the Culbertsons claimed.
In the meantime, the Culbertsons alleged, the Thorntons were cleverly working to win control of the business by manipulating corporate laws, converting non-voting shares of stock to common, voting shares of stock and then by taking still more stock--ultimately, 75% of it--in exchange for their investment.
All the while, the Thorntons were charging “usurious interest rates” on their loans to the winery, and were claiming the majority of the winery’s losses for their own tax benefit, the Culbertsons alleged in court.
The Culbertsons say they had thought all along that no matter how much stock their investors were awarded, they as the winery’s founders would always share 50-50 control with the Thorntons over who was voted onto the four-member board of directors. They had been granted an irrevocable proxy to vote 1,100 of the Thornton’s 3,300 shares. That way, each couple controlled 2,200 voting shares of stock, and neither side could blindside the other.
In that case, the Culbertsons said, how could the Thorntons vote the Culbertsons off the board?
Simple, the Thorntons responded in their legal papers. That proxy agreement had a caveat: the proxy was void if the Thorntons hadn’t been repaid. And the Culbertsons were abusing their powers as officers by taking winery funds, the Thornton’s contended. So the Thorntons unilaterally withdrew the proxy votes that had been the Culbertsons’.
John Culbertson was outraged.
“It was never explained to me, orally or in writing” that the Thorntons could revoke the proxy, Culbertson said in a declaration. “Moreover, it was not explained to me that there was any possibility of losing control” of the winery.
The court files contain a letter from the winery’s legal counsel to the Culbertsons explaining how they controlled 1,100 voting shares of Thornton stock.
“This will effectively assure that you will always be able to control two seats on the four-member board,” the letter from attorney David Dick reads.
Culbertson said it finally made sense to him how he had gotten himself into the jam. Another attorney with the law firm that represented the winery, Gray, Cary, Ames & Frye--the very law firm giving advice to Culbertson on the proxy matter--was corporate counsel at another Thornton company. That lawyer, John Byrne, then became president of the Culbertson Winery when founder Culbertson was ousted. This was a classic case of conflict-of-interest by an attorney, Culbertson alleged in court, because he was receiving legal advice from a law firm even though one of its attorneys was a Thornton man.
Of course the winery was in debt, Culbertson said; it was part of Thornton’s long-range game plan to expand winery operations--and incur debt--for down-the-road increases in champagne production.
The Thorntons responded with their own allegations:
* When the the Culbertsons arranged a $4.3 million Citibank loan to construct the new Temecula winery, John Culbertson cut himself a $633,000 check from those proceeds to help pay the mortgage on his Fallbrook home.
* In December of 1990, John Culbertson ordered himself a $40,000 check “under the guise of reimbursement for travel expenses” when there either was no such travel, or it already had been reimbursed.
* That same day, Culbertson wrote himself a $56,000 check toward his personal Fallbrook mortgage, which by then was in default.
* Previously, in 1988, the Culbertsons ordered the winery to buy $103,000 worth of still, or non-sparkling, wine that the Culbertsons themselves had produced in Fallbrook, even though “the winery had no reason” to buy the wine.
* The Culbertsons were charging the corporation $6,000 a month to store champagne at their Fallbrook estate, even though the Temecula winery, once constructed, was fully capable of storing its own stock of sparkling wines. At the same time, the Culbertsons were storing their own, Fallbrook-produced wines at a San Marcos beverage company--and sending the bill to the Culbertson Winery Corp.
* Even the first $400,000 loan, “Culbertson applied . . . not to the corporation but instead to his delinquent personal debt.”
Thornton alleged that John Culbertson’s conduct “constitutes such fraudulent and dishonest acts and such gross abuse of authority and discretion . . . that he must be removed as a director, pursuant to the California Corporations Code . . . and permanently barred from reelection.”
With the outbreak of legal action, the Thorntons demanded that wine-making equipment that had been stored at the Culbertsons’ home in Fallbrook be returned to Temecula.
The Culbertsons said they had the right to buy it if they wanted--and they hadn’t yet decided. The Thorntons responded that they needed the equipment immediately so they could begin to crush and process grapes. The Culbertsons said baloney: the Temecula winery buys grape juice, and isn’t plumbed to crush its own grapes and handle the waste water.
And speaking of who owes whom what, the Culbertsons said, “There are several items that (we) would like returned as well: 1. Baldwin piano. 2. Kitchen Aid heavy-duty mixer. 3. Postal scale; and 4. White desk--last seen on the third floor.”
While the arguments volley back and forth, the Thorntons try to keep the Culbertson Winery moving forward. A press release last November read that “after six months of intense work by a turnaround team, Culbertson Winery Corp. has improved operations, restructured its debt and launched a long-range plan for future growth.”
The Thorntons said they now are 99% owners of the winery, with $20 million at risk.
New winery brochures make no mention of John and Martha Culbertson, and employees there today simply dismiss inquiries about the Culbertsons as “1% owners who no longer are actively involved.”
Mutual friends to both couples say that even if the lawsuit is somehow resolved, it’s hard to believe that both sides will walk away from it arm-in-arm.
The high-society divorce has San Diego’s top hostesses shuffling their place cards like a diplomat setting up seating for Arab-Israeli peace talks.
“We’ve never seen anything quite like this before,” said one local patron of society.
For smaller parties, what’s a hostess to do? If one comes, the other won’t. “You got it,” said Virginia Monday, a local social organizer.
“If it’s a woman’s luncheon and the gals want to invite both girls, they’ll call Mrs. Thornton and say, ‘Sally, this is a fairly sizable luncheon and Martha Culbertson is included,’ and usually Sally Thornton won’t go,” Monday said.
“But it plays both ways. If we told Martha of a party--and said Sally is coming--then Martha has decided not to come. It’s been a terrible strain on both of them. They don’t want to be in the same room--and I don’t blame them.”
But for the most part, Martha Culbertson has remained more evident than Sally Thornton at local social events.
Larger functions still draw both, but “those of us who are involved in planning functions are very aware of the seating, if both of them are on the guest list,” socialite Dixie Unruh said. “We want to be certain the tables aren’t near each other.”
At a major fund-raising event next month for the San Diego Museum of Art, the Thorntons refused to be included on the list of honorary chairpersons when they learned that the Culbertsons were already on it, insiders say.
Some people say San Diego society itself is divided by the battle, its players showing their loyalty to either the Thorntons or Culbertsons by which philanthropic and cultural committees they join.
“There are even husbands against wives in this thing,” said one local man. “I think it’s because the women tend to listen to the Culbertson side of the story, and very few people have heard the Thornton side. The Thorntons aren’t exactly the kind of people you walk up to and ask, ‘So, what’s your side of the story?’ ”
Most local people see the Thorntons as “the predators,” one highly involved about-towner said.
One local woman--who, like virtually everyone contacted by The Times, declined to be identified by name--agreed that sympathies run more with the Culbertsons.
“They appear more to be the kind of people-next-door who are genuinely big-hearted, and they’re losing their name, the name they worked for, the Culbertson Winery,” she said.
Business associates and friends of the two men draw their own conclusions about the case.
“The notion that Thornton had devious intent to take over the winery by sinking $15 million or more into it is absurd,” said one. “He could have started his own winery for less money than that.
“But he was entitled to get tough, after sinking all that money into the winery, and I think the Culbertsons were naive.”
Said another businessman familiar with Thornton’s style of management: “He believes in ultimate control. He is San Diego’s J.R. Ewing.”
Bill Otterson, who brought John Culbertson and John Thornton together in 1986 through his de facto role in San Diego business circles as a matchmaker between entrepreneurs and venture capitalists, says he was willing to serve as a kind of referee to bring the two couples back together.
“I want both sides to look into the future and decide, what is best for them? Both sides are being hurt by this. Thornton is being hurt socially, and Culbertson is being hurt because he’s running up incredible legal bills.
“I told John Culbertson, ‘If you lose, you’ll lose everything--your house, everything.’ And I told John Thornton, ‘If you win, you still lose, because you get the label of bully.’
“This is David and Goliath. John Thornton is the Goliath in this thing, and if Goliath wins, he’s a bully, and if David wins, he’s a hero.”
