Premier Cru, the troubled California wine retailer and importer once known for unbeatable prices on wines promised for future delivery, has filed for bankruptcy. On Jan. 8, the Berkeley-based firm, under its corporate name, Fox Ortega Enterprises, petitioned for Chapter 7 protection under federal bankruptcy law. Premier Cru's 1,401-page filing lists just $7 million in assets, including $6.8 million worth of wine, and $70 million in liabilities.
Nearly all of that debt is owed to almost 9,000 customers who paid for wines they never received. Their losses, which are unsecured, range from under $10 to the high six figures. A first meeting of creditors, at which Premier Cru proprietors John Fox and Hector Ortega must appear, is scheduled for Feb. 21. Neither could be reached for comment.
The list of unsecured creditors shows the broad reach of the clientele that Premier Cru once boasted. They come from almost every state and at least eight countries in Europe, Asia and South America, and include top corporate executives and several well-known California winemakers.
The bankruptcy filing comes as a particularly bitter pill to a dozen customers who have filed lawsuits against Premier Cru in state and federal courts. By law, all these actions are now automatically stayed.
"Most corporate bankruptcy cases are top-heavy with a few large secured creditors," said Don Cornwell, a commercial lawyer as well as a wine collector. "But here, the debt structure is inverted. You have only a tiny amount of secured debt. The rest is all 'mom-and-pop' creditors. Unfortunately, they'll probably receive at the very most 10 cents on the dollar of what they are owed."
In better days, Premier Cru customers learned (and many accepted) that the tradeoff for the very low prices they paid for top wines was that delivery could be several years away. If they got tired of waiting, they could exchange their credit for in-stock wines.
It's unclear why and how Premier Cru's business plan went south. Other retailers have suggested that strong Bordeaux future campaigns for such vintages as 2000, 2005, 2009 and 2010 infused Premier Cru with fresh cash each spring that could be used to buy wine to fill previous orders. But when Bordeaux futures sales went dead in recent years, that cash dried up. Wait times for pre-ordered wines grew, as did customer complaints.
A few months ago, Premier Cru began running weekend sales of top-tier French wines, sold "pre-arrival" at prices 40 percent lower than other stores. Competing store owners shook their heads. "Good retail customers might get a 2 percent discount at the château or domaine," said Daniel Posner, president of the National Association of Wine Retailers and owner of Grapes the Wine Company in White Plains, N.Y. "Nobody gets 40 percent. They were retailing wines at below wholesale prices. The truth was, they did not own the wine they were selling."
On Dec. 10, with the number of complaints and lawsuit plaintiffs growing, Premier Cru abruptly closed its store to all but customers who had appointments to pick up wine. A recorded telephone message announced that the business was "transitioning to online sales."
On Dec. 28, in what might have been a last-ditch effort to raise cash, Fox privately offered certain dealers a stash of 27 different trophy wines, including magnums of Château Ausone 2010 at $1,200 each and Domaine de la Romanée-Conti Romanée-St-Vivant 2005 at $900 per bottle. Buyers were instructed to pay by wiring cash.
Eleven days later, Universal Card Inc., a credit-card processor, filed suit against Premier Cru and Fox in state court, claiming it was owed $228,500 for "chargebacks"—refunds to customers who had not received wine they had paid for. The lawsuit also alleged fraud, claiming that Premier Cru and Fox knew that customers would never receive the wine they paid for and knowingly signed refund checks that bounced in an effort to show they were trying to resolve their problems.
"Many of us in the retail business saw this bankruptcy coming," said Posner. "If you went to the châteaus and domaines where they were selling a bottle to us for $150, and Premier Cru was selling it for $100, it didn't make sense. Sooner or later, it was going to end badly for their customers."