Two Napa wineries and a brewery have filed for bankruptcy protection, while pursuing plans to recover and continue business operations.
The limited liability company that formed Napa Smith Brewery and Winery filed for Chapter 7 business bankruptcy protection on Sept. 22.
On Sept. 10, in a separate filing, Frazier Winery, located on Rapp Lane in Napa’s Coombsville area, filed for Chapter 11 bankruptcy protection.
Both businesses filed in the U.S. bankruptcy court in Santa Rosa.
Wineries, especially those selling premium priced wines, have been impacted by the recession, Vic Motto, chief executive officer of Global Wine Partners in St. Helena said.
Young wineries seeking to establish themselves are the most vulnerable in a downturn and have been hit the hardest, he said.
“A lot has to do with debts or liabilities the wineries have and their inability to pay their obligations,” Motto said.
Bankruptcy, while a dramatic step, can give them time to work out a new arrangement with creditors, Motto said.
Napa Smith Brewery and Napa Smith Winery are located at 1 Executive Way in Napa, in the old Hakusan Sake Gardens at the corner of Highway 29 and Jamieson Canyon Road.
The property had entered into foreclosure proceedings and was scheduled to be auctioned off at the Napa County courthouse steps on Sept. 22 when the last-minute business bankruptcy filing provided an automatic stay to any property sale.
According to a 2008 Register interview, Napa Smith owner Greg Cutuli and his wife, Kathy Smith-Cutuli, bought the former Hakusan Sake Gardens in 2007 to open a winery and brewery.
Kathy Smith is known for owning two high-visibility commercial properties: the former Pometta’s Deli on Oakville Grade at Highway 29 and the original Red Hen restaurant site on Solano Avenue north of Napa.
In 2004 and 2005, Smith organized unsuccessful ballot measures to allow new uses at the old Pometta’s site.
On Sept. 22, Smith lost the former Red Hen parcel to foreclosure and the property was returned to lender Liberty Bank. The former Pometta’s deli property was sold at a court ordered sale on Oct. 6 for $100,000 to buyer Mehrdad Elie.
On Sept. 19, three days before Napa Smith filed for bankruptcy protection, Pelican Brands of Indiana announced the acquisition of Napa Smith Brewery and Napa Smith Winery operations and the property, including seven acres and 50,000 square feet of production, warehouse and office space.
Even with the bankruptcy filing and foreclosure, his purchase of the Napa Smith business will go forward, Pelican Brands chairman J. Smoke Wallin said in a statement.
He hopes to eventually either buy the foreclosed property himself or lease it from a new owner.
“Our focus is to grow Napa Smith into a successful company and move forward,” Wallin said. “This acquisition is a perfect strategy.”
The business purchase also includes the Napa Smith Winery. “Our focus is on the brewery right now, but we intend to grow the winery as well,” Wallin said.
Brewmaster Don Barkley and president Steve Morgan remain at Napa Smith as partners in the new deal, Wallin said. The businessman said he hopes to hire up to 10 more employees in 2011.
Wallin’s immediate plans include finishing the Napa Smith beer and winery tasting room. The business is open for tours by appointment only.
The Napa Smith bankruptcy filing lists only one creditor, Liberty Bank of South San Francisco. The filing lists both assets and liabilities of between $1 million and $10 million. No income is listed for the business. A representative of Liberty Bank did not return a call for comment.
The main liability is $4 million owed to Liberty Bank, of which $25,000 has been paid, according to court documents. Gregory Cutuli of Florida and Kathleen Smith of Napa are listed as each owning half of the business.
Michael Rupprecht, attorney for Kathy Smith, declined comment. Greg Cutuli and Kathy Smith could not be reached.
A bankruptcy court meeting for Napa Smith creditors is scheduled for Oct. 26 at 10 a.m.
Bill Frazier, a retired airline pilot, founded Frazier Winery in 1995, according to the company’s website. The winery sells about 3,000 cases per year.
“We are attempting to reorganize our business like many other wineries and businesses out there right now,” winery spokesperson Kim Frazier-Caterino said in an e-mail. “Operations are continuing at the winery as usual. The Frazier brand is strong and we hope to come out of Chapter 11 within a very short time period.”
The winery office is at 40 Lupine Hill Road and the tasting room and cave at 70 Rapp Lane in east Napa. In 2001, Frazier added a 50,000 gallon winery facility to the property and then a 10,000 square feet of cave for storing wine and hosting private events.
The bankruptcy filing notes that the 20 largest Frazier creditors include Umpqua Bank, the Napa County Tax Collector, Igneous Wines of Napa and KV Wines of St. Helena.
KV Wines is owned by Frazier winemaker Kirk Venge. Venge could not be reached for comment.
The business also owes $180,000 on an 11-acre vineyard lease with Lupine Hill Vineyard LLC, which is also owned by Frazier.
The business reported wine sales of $1.2 million in 2008, $1.5 million in 2009 and $741,000 year to date.
The filing lists $2.6 million in assets including wine inventory, equipment and 40 acres of wine grapes at 40 Rapp Lane. The filing lists $789,251 in liabilities including an April 2008 loan for $398,000 from It’s a Jungle Out There, also known as Vintage Capital.
In late August, Vintage Capital successfully sued Bill Frazier, Frazier Winery and Lupine Hill Winery for approximately $700,000 in unpaid loans. Peter Bertran, attorney for Vintage Capital, said winery inventory was to be given to Vintage Capital to pay off the loans, but the bankruptcy filing halted the exchange.
Vintage Capital is also one of three lenders seeking to foreclose on the Frazier winery property and the personal residence of Bill Frazier, Bertran said.
On Oct. 8, the bankruptcy court held a creditors’ meeting for Frazier Winery. The next meeting for the bankruptcy is scheduled for Nov. 5.
While financial problems have struck Napa Smith, Frazier Winery and others, including Cosentino Winery and Diamond Oak Vineyards, “it’s nothing like what’s happening with other industries around the country,” Motto said.
“It’s not the world coming to an end for the wine industry. It’s reflective of things going on perhaps at the margin or to those the least established and least able to withstand the winds of recession. And that’s a small number,” Motto said.
The Chapter 7 bankruptcy was filed Sept. 22 by 1 Executive Way LLC which owns the real estate and building that house the brewery and winery.
Napa Smith LLC, the business the operates the brewery and winery brands, did not file for bankruptcy.