One of Sonoma County's largest wine companies, Healdsburg-based Ascentia Wine Estates, is insolvent and on the brink of financial collapse, according to an explosive lawsuit filed by one of the company's owners.
W.J. Deutsch & Sons, the powerful White Plains, N.Y. wine sales and marketing company, filed the suit last week in Delaware, where Ascentia is incorporated.
The complaint, with allegations of fraud and mismanagement, threatens to undermine the young wine company at a crucial time as it works to build its own sales and marketing team following a break-up with W.J. Deutsch two weeks ago.
"The company is insolvent, and its imbalance of assets and liabilities is worsening," the suit claims.
Bill Deutsch was a key player in the complex $209 million deal that created Ascentia in 2008 and allowed it to purchase eight wine brands in three states from wine conglomerate Constellation Brands.
Deutsch's company markets a portfolio of domestic and imported wines including Kunde Family Estate in Kenwood and Yellow Tail from Australia, which sells more than 8 million cases in the United States.
Deutsch's clout with distributors and his equity stake in Ascentia were cited at the time as keys to the new wine company's success. Now he is predicting the company in which he invested $16 million cannot survive as currently structured.
"The business of the Company is to sell wine, yet the Company, with its worsening insolvency and unworkable business model … cannot remain in business," the lawsuit states.
Ascentia's chief executive officer, Jim DeBonis, would not discuss the litigation, a company spokeswoman said. In a statement issued earlier this week, DeBonis said he regrets his partner's move.
"It is not our preference to resolve disputes either in the media or in the courts, and we regret that Deutsch is choosing to do so," DeBonis said. "We are confident, however, that all matters with Deutsch will be resolved favorably for Ascentia.
"The work that our sales force is doing directly with distributors is going extremely well, and we continue to remain focused on making and selling outstanding wines of exceptional value," he said.
Deutsch also regrets having to take legal action, said his New York attorney, Howard Graff. But he felt compelled to do so after Ascentia put him in the impossible position of being unable to speak openly with creditors or other investors about the true financial condition of the company.
"He didn't have a choice," Graff said. "His choice was between a rock and a hard spot, and the lawsuit is simply trying to resolve this dilemma."
The fate of three of Sonoma County's best-known brands is at stake in the fight.
Ascentia owns Geyser Peak in Geyserville, Buena Vista Carneros in Sonoma and Gary Farrell in Healdsburg. Other local wine brands include XYZin, a Sonoma County zinfandel, and Atlas Peak, a Napa cabernet sauvignon. The company also owns Covey Run winery in Central Washington and the brands Columbia Winery and Ste. Chapelle from Idaho.
The company employs 250 people through the organization and last year sold 760,000 cases of wine, according to DeBonis. When the brands were sold, Constellation said they produced over 1 million cases in 2007.
According to the suit, Ascentia is overleveraged and cannot pay the mountain of debt it borrowed to acquire the brands.