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Who Owns Bankrupt Retailer Premier Cru's Wine?

A trustee plans to sell off the California store's 6,000 cases of wine stocks, but some customers argue their property is being taken
Photo by: Tim Pinault
Two lawsuits have been filed against Premier Cru's court-appointed Chapter 7 trustee.

Peter Hellman
Posted: April 29, 2016

Updated on May 10.

The bankruptcy proceedings of wine retailer Premier Cru have become further complicated this month: Eight former customers have filed objections to the court-appointed trustee's plan to sell off the retailer's entire remaining wine stocks and divide the proceeds among its creditors. The objecting customers insist that some of that wine is theirs, having already been paid for but yet to be delivered.

This week, in a highly unusual legal maneuver, one of those customers also filed a class-action lawsuit against the trustee, asking the judge in the case to stop the sale.

The suit threatens to complicate and delay what has already turned into a messy proceeding, involving thousands of irate customers who paid for wine that Premier Cru never delivered. Premier Cru, founded in 1980, built a reputation for unbeatable prices on sought-after wines. The caveat was that the wines were mainly promised for future delivery. In its final years, Premier Cru had trouble making good on those promises. In 2015, at least 10 lawsuits were filed by clients who had waited years for undelivered wine.

Premier Cru filed for bankruptcy Jan. 8, and proprietor John Fox declared personal bankruptcy one month later. The FBI has announced it is "investigating claims of a Ponzi scheme" involving Premier Cru and Fox. In court appearances, Fox has pleaded the Fifth Amendment. At a hearing earlier this month, a lawyer for Fox told bankruptcy Judge William Lafferty that discussions with the F.B.I. and U.S. Justice Department are "creeping toward a resolution" and that, "if either through pleas or a trial, there is agreement or conviction, there is going to be a restitution component and it will be large."

In its bankruptcy filing, Premier Cru listed $6.8 million in wine inventory and $70 million in debts. The court-appointed Chapter 7 trustee, Michael Kasolas, has told Judge Lafferty he plans to sell all 6,000 cases in the warehouse, to raise money for the creditors.

Whose wine is it?

Eight former customers argue that wine they've already paid for is sitting in storage at the Premier Cru warehouse. On April 27, one of those creditors, Michael Podolsky of Fairfield, Ill., filed a class-action lawsuit against Kasolas. Podolsky, who claims ownership of $245,000 worth of wine that still remains in the warehouse, filed a personal lawsuit against the trustee earlier this month.

"Once we filed our opposition to the trustee's sale motion, my counsel heard from many other former customers wondering how they too could protect their ownership rights," Podolsky told Wine Spectator through his attorney. "This seemed like the most efficient way for everyone to protect their interests."

Kasolas argues, in a filing earlier this week, that title to the disputed wine, even if paid for, did not pass to the purchasers until delivery. He cites a 2009 decision in the case of another bankrupt retailer, Carolina Wine Company. In that ruling, the court held that wine kept in the warehouse while the firm was in business could be returned by the customer for a refund, and that the cost of any damage to the wine would be borne by Carolina, therefore title did not pass to the purchaser until the wine was shipped. That is called a "shipping contract," and Kasolas argues its terms also govern the wine held in Premier Cru's warehouse.

Not so, Podolsky argues. "The purchased bottles were held in the debtor's warehouse free of charge, one of the debtor's points in its selling pitch, and the debtor never claimed to own those bottles which it stored for my benefit," reads his complaint. As evidence, Podolsky refers to "banter" in a 2011 e-mail to him from a salesperson, James Gillerman, who quips, "Can I take just one of your bottles to Brazil with me? Just the Romanée-Conti?"

Kasolas is grappling with numerous dilemmas as he tries to sort through the vast trove of wine in the warehouse. Some is in "general inventory," without customers' names attached. More than 5,000 other bottles, boxed up and bearing the customers' names, is in a segregated space. Some wine in both spaces has been paid for by multiple customers, with not enough to go around.

Kasolas hoped to persuade Judge Lafferty at a May 2 hearing to declare that the segregated wine belongs to the debtor, not the customers. That should clear the way to sell all of the wine, Kasolas says. The proceeds from such a sale would be used not only for restitution to Premier Cru customers but also to pay costs of the bankruptcy, ranging from electric bills keeping the warehouse at cellar temperature to lawyers' and administrative fees.

Podolsky's class-action suit threw a wild card into the hearing. After the judge heard arguments from both sides, he issued a motion ordering both sides to meet and try to negotiate a solution.

Kasolas' plan could be the fairest outcome, according to John Kozyak, a fellow of the American College of Bankruptcy uninvolved with the case. "Bankruptcy law exists to make sure everybody in the class gets treated in the same way rather than having the squeaky wheel get more," Kozyak said. "The people who have wine in the segregated room have the best argument, but for the rest of them, the wine should be sold and the funds distributed on a pro-rated basis. It appears the debtor defrauded or tried to defraud everyone. It is most fair to treat all victims alike."

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