Legal saga puts Truett-Hurst winery under harsh spotlight
It was only in 2011 when Bill Hambrecht teamed up with Phil Hurst in an unusual gambit in the wine world that was just coming out of the Great Recession: a business venture to grow wine brands under one umbrella and eventually go public as a company.
Using Hurst’s knowledge of the industry and Hambrecht’s financial resources, they formed a partnership with veteran winemaker Paul Dolan, a pioneer of environmentally conscious farming, and his son, Heath. Their company, Truett-Hurst Inc., set out to claim a stake among the largest wine companies that dominate the multibillion-dollar industry.
“Our goal is to aggressively build this company and take it where few wine companies have gone before,” Hambrecht said at the time.
Now five years later, after several rough patches for each man, Hurst and Hambrecht find themselves pitted against each other in court with significant outcomes for both.
For Hurst, president and chief executive officer at Truett-Hurst, the result could help determine the future of the Healdsburg vintner, which has suffered a series of significant losses that sent its stock tumbling to $1.59 a share as of Friday, down from nearly $4 a share year ago. It had been below $1 in recent weeks.
For Hambrecht - whose investment firm made millions of dollars by underwriting the initial public offering of companies such as Apple and Genentech - it likely represents a coda to a local wine industry career that has spanned more than 30 years. Once a high-profile financier for local winemakers, Hambrecht has mostly faded from the scene amid multiple lawsuits by employees who alleged he failed to pay them.
Noting he found that both sides are “good people,” wine industry analyst Joe Ciatti said the legal wrangling is a cautionary tale that shows success is not guaranteed in an industry that has grown steadily for more than two decades.
“It just points out there are a lot of people still struggling in the industry. Not everybody makes big money in it,” said Ciatti, a principal at Zepponi and Co.
The dispute came to the forefront this fall when the parent company of Truett-Hurst, H.D.D. LLC, filed suit on Nov. 9 in Sonoma County Superior Court against the Hambrecht Wine Group. Truett-Hurst is seeking to renew the lease on its Westside Road winery and tasting room, which is scheduled to lapse at the end of February.
The company makes about a quarter of its wine at the approximately 14-acre facility, which houses Truett-Hurst’s sister facility, VML, said Lewis Warren, the attorney representing H.D.D. In its complaint, H.D.D. said it would suffer an “extreme disruption of its business” if the lease was terminated.
Early days
The court case signals a significant falling-out between the company’s founders. In 2011, Hambrecht gave the company a five-year lease at the facility, which had once housed his now defunct Belvedere Winery. At the time, Hambrecht noted he owned 25 percent of the startup. Hurst labeled Hambrecht’s investment as a “multimillion-dollar deal.”
The company later went public in June 2013 through an auction process, a specialty Hambrecht developed for tech companies. Its stock sold for $6 a share during the IPO, well below the $11 to $15 originally sought by management.
Three months later, Truett-Hurst announced that Hambrecht would not stand for re-election to the board of directors. In the SEC filing, Hambrecht said he had “no disagreements with the company relating to the company’s operations, policies or practices” and would remain a long-term stockholder. Hurst said he looked forward to their “continued collaboration.”
Two years later, Hambrecht is now trying to revoke the lease by claiming the company was in default of various provisions in the contract, according to the complaint.
H.D.D. is asking for a judicial order to stop Hambrecht from not renewing the lease, set to expire Feb. 29. Instead, it wants to resolve the dispute through arbitration as called for in the contract.
In a filing with the Securities and Exchange Commission in October, Truett-Hurst said the dispute centered on its decision to withhold $33,000 from several monthly rental payments in 2011, 2013 and 2014, citing a disagreement over failure to provide water to the facility.
In its lawsuit, H.D.D. said it sent Hambrecht a $45,000 check for rent deductions made for the water and late charges, but it was rejected on Oct. 21 and Hambrecht moved to terminate the lease and requested that it vacate by Nov. 15 - a deadline the company ignored, according to Warren.
Hambrecht also alleged H.D.D. failed to comply with a subletting provision in the lease and did not submit production reports designed to determine whether it owed additional rent, according to SEC and court filings.
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