Culbertsons Lose Temecula Winery : Business: Out-of-court settlement ends lawsuit battle between founders of wine-making company and the Thorntons, who took control from John and Martha Culbertson.

The scandalous battle between two prominent San Diego County couples for control of the renowned Culbertson Winery has ended out of court with John and Martha Culbertson conceding the loss of the family-founded business to venture capitalists John and Sally Thornton.

The settlement, announced Thursday, calls for both sides to drop their allegations against the other, no award of money between the two, a ban on the Culbertsons from using the Culbertson name on their wines, and a promise by each couple not to disparage the name of the other.

Despite the pledge that the vintage fight was resolved, signs of animosity between the one-time partners in the La Jolla social circle remained evident as they took different views of the lawsuit’s outcome.

John Culbertson, for instance, said a third party had agreed to pay a cash award to him and his wife--money which they would promptly turn over to UC San Diego for cancer research.

“Money is coming to us, but we are donating a portion of our settlement . . . in my wife’s name,” he said.

“We’re way better off than we were last June, in all respects,” Culbertson said. “This is behind us. Everything is resolved, and the liabilities are gone.”

John Thornton, on the other hand, said that “not a single penny” would pass through the Culbertsons’ hands. The outcome of the settlement, mediated through retired U.S. District Judge J. Lawrence Irving, shows that “we were totally vindicated,” Thornton said.

Culbertson said of the loss of the winery business he founded in 1981 to the Thorntons, whom he invited into the business five years later: “They have the (Culbertson) name. I hope they do well with it.”

At issue were claims by the Culbertsons that they had lost control of their family winery business to the Thorntons, who tapped personal wealth estimated at $100 million or more to back the fledgling winery--only to eventually and convincingly wrest control of the winery from its founders.

The Thorntons poured more and more money into the winery, financing its premature expansion and taking increasingly greater equity control of the business, the Culbertsons maintained.

In a quickly-escalating legal battle that was the talk of La Jolla’s socialites, the Thorntons counter-sued that the Culbertsons had embezzled several million dollars from the winery for their own purposes--including money to pay the mortgage on their Fallbrook ranch where the Culbertson first developed his esteemed champagnes in the late 1970s.

In 1988, the winery was relocated to the Riverside County wine country outside Temecula, and the sparkling wines produced at the $10-million complex continued to win accolades.

The Thorntons said in their counter-suit that they ejected the Culbertsons from the winery’s board of directors after learning of missing funds--Thornton funds--and wanted to preserve the corporation’s financial integrity.

In January, San Diego Superior Court Judge Robert J. O’Neill, faced with ever-thickening court files that were into their fifth volume--ordered the couples to mediate the dispute.

Since then, neither couple has met face to face, working instead through their attorneys and allowing Irving to exercise, as Culbertson called it, “shuttle diplomacy” to bring the two sides together.

Among the terms of the settlement, Culbertson agreed to abide by an earlier injunction not to use his own name on any wines he will produce under his current label--Fallbrook Winery--or on the new Bellefleur Winery he’s planning to build in Carlsbad.

Culbertson also must relinquish wine-making equipment that he had stored at his Fallbrook ranch--wine presses, barrels, tanks and other equipment that he said he had the right to purchase from the winery corporation, but has now decided not to. The Thorntons had argued that the Culbertsons had held the equipment hostage.

Irving said he would be present when the equipment is turned over--and was prepared, if necessary, to have sheriff’s deputies present to preserve the peace, given the acrimony of the two couples’ eroded relationship.

Both sides agreed to pay their own costs and attorneys’ fees.

The third party in the lawsuit is the prominent San Diego law firm of Gray, Cary, Ames & Frye. One of its then-lawyers, John Byrne, was providing legal advice for Culbertson after the Thorntons entered the winery business. After the Culbertsons were thrown off the board of directors of the winery, Byrne emerged as the winery’s new president.

Because of Byrne’s role with them, but then ending up as the Thornton’s administrator for the winery, the Culbertsons alleged Byrne’s legal advice to them--advice which they said they thought would preserve their interest in the winery--may have been tainted and was a conflict of interest.

Sterling Hutcheson, an attorney and spokesman for the law firm Gray, Cary, Ames & Frye, said the Culbertsons’ claim against Byrne was “totally without merit,” but nonetheless agreed to pay $35,000 to help mediate the settlement. Part of that money, he said, would go toward Irving’s mediation fees--and part would go to UC San Diego for cancer research.

“We insisted that none of the money go directly to the Culbertsons or their attorney,” Hutcheson said. “We agreed to make a gift to UC San Diego, in the name of Martha Culbertson. But it’s not a gift of the Culbertsons. It’s our gift.”

Despite the disagreement over the terms of the gift, John Culbertson said the overall settlement “was one of those things where the lawyers were the only ones who come out ahead. It was either a win-win or a lose-lose situation for both sides.

“It’s now out of our hair,” he said. “We can go forward with the other things we’re doing. We hope the animosity (toward the Thorntons) will go away in time and things will return to normal. That’s our hope.”

He speculated that if the two couples were to attend the same social affairs, “we will at least nod to each other, but I don’t know that you could expect us to share a table.”

Thornton said he was glad to shed the legal action because “spending more money (pursuing it) was not warranted in light of the return we could expect. You invest in a deal because of the likelihood of getting something out of it. It became apparent there was no reason for further investment on our part.

“Do I feel any different about our allegations? Absolutely not, and they’re 100% true,” Thornton said. “But we’ve settled because it’s economically the prudent thing to do under the situations that exist today.

“This was a very sick situation. The publicity has been detrimental to us--although it probably didn’t hurt the winery, and probably helped it. The winery is doing very well, much better than it has ever done.”

Despite the negative outfall from the lawsuits, Thornton said, “there will never even be a ripple from the standpoint of our ongoing economic involvement in business or in the community, in charitable activities . . . “

Sally Thornton said she was “dumbfounded by how people rallied in our corner” as the infighting between the two couples erupted publicly. But all that free and widespread publicity had its benefits, she added: cruise ships and airlines began stocking the award-winning Culbertson champagnes for their passengers.

She said it would be “totally impossible” for the two couples to reconcile, and characterized the out-of-court settlement this way: “We gave up hot pursuit.”

“We wanted to get on with the rest of our lives,” she said. “This was worse than a gnat buzzing around you because at least the gnat will go away for part of the day.”

For their part, the Culbertsons say they now plan to lease agricultural land alongside Interstate 5 in Carlsbad for their newest venture: Bellefleur Winery, alongside which the couple hopes to plant grapes next spring.

Eventually, the couple may return to making sparkling wines, he said. Their 3-year-old Fallbrook Winery produces still, or non-sparkling, wines. “It’s easier and more fun the second time,” Culbertson said. “And hopefully we won’t make the same mistakes we made the first time.”