Premier Cru

This is not the first time Premier Cru has been implicated in dubious business practices. From 2002 to 2004, the wine company purchased $296,235 in wine from Mark Anderson, a Sausalito businessman who was charged in 2004 with embezzling $1 million worth of wine from clients at his wine storage facility. He was later charged and convicted of setting a fire in a Vallejo warehouse that destroyed 4.5 million bottles of wine worth $250 million. Anderson is now serving a 27-year prison sentence.

Premier Cru didn’t seem to do due diligence on where Anderson got his wine to sell, according to a former Premier Cru employee who asked not to be named. Anderson would pull up regularly to the Premier Cru warehouse in Emeryville in an old burgundy Cadillac with loose wine bottles rattling around in plastic milk cartons in the back.  The employees unloaded them, no questions asked. “I doubt John Fox ever asked Mark for documentation regarding the provenance of the wine he sold,” said the former employee. “It seemed like Mark would bring the wine by, then they would agree on pricing, John would cut a check, and that was it.” After Anderson was indicted and articles about him appeared in newspapers, Fox did sever relations. But within two weeks, Anderson turned around and sold $34,800 in French wine to Premier Cru under a different name.

Some former customers date Premier Cru’s current troubles to 2009, the year the business purchased a 27,000-square-foot, three-building complex in Berkeley for around $4.1 million. The company had been renting in Emeryville for 12 years and in Oakland for 18 years before that. Fox told the Contra Costa Times that the company, with $20 million in annual revenues, was ready to expand its face-to-face interactions with customers.

The building that Premier Cru intended to turn into a showcase had once housed an art supply store. But the structure had been vacant for a number of years and was often a target of graffiti taggers and vandals. Fox and Ortega formed 1011 University Ave, LLC, and hired David Trachtenberg, a Berkeley architect who specializes in adapting old buildings.

Trachtenberg created an inviting, richly detailed space with mahogany walls, mahogany wine racks, a temperature controlled steel and glass room to hold wines that cost more than $150 a bottle, track lighting, and a flat-screen television. The remodel cost $500,000, Fox told a local newspaper. Fox added three employees to the 15 already employed by the company. He stocked many high-end wines in all formats, with some bottles costing more than $15,000.

But the new space, which won architectural awards, did not appeal to everybody.  “Once he moved into his ‘Taj Mahal’ I stopped going by,” said Michael Wilson, a long time customer. “It was very off-putting. I assumed it was built as a business ploy aimed at his big fish. Everybody went from being in jeans and short sleeves to suits and speaking in British accents. It was an entirely different experience.”

That same year, Fox bought a five bedroom, 6,000-square-foot house in Alamo, one of the country’s wealthiest communities with a median household income of $140,561. The house, about 18 miles east of Berkeley, had been previously foreclosed upon and Fox and his wife snapped it up for $2.3 million, according to SF Block Shopper.

Business appeared to be flourishing. Fox and Ortega held a grand opening bash in December 2011 with valet parking, gold and black balloons, and platters of food. Fox often hosted after-hours work parties on Fridays, according to people who attended. Fox would open numerous bottles of fine wine for his friends, and serve bread and cheese as accompaniments.

The bulk of Premier Cru’s business, however, was online. The company became known for its aggressive email marketing campaigns, which went out twice a week with great offers on premium wines. Wu remembers buying a bottle of 2011 Chateau Lafite for $260 a bottle from the store. That same bottle was selling for $375 or $400 a bottle elsewhere, he said. In October 2015, Premier Cru offered a Haut-Brion 2014 for $186, about $100 less than it was offered elsewhere. Dr. Carl Lomboy, a cardiologist in Anderson, SC, who had been collecting wine for investment since 1995, purchased his first wines through Premier Cru in 2010. Dr. Lomboy knew that the 2010 Bordeaux vintage was considered one of the great vintages of the century and he decided to buy en primeur to secure good prices. He researched Premier Cru and found it had a good reputation. He also bought futures from two other online wine retailers.

By 2012, Dr. Lomboy had received his Bordeaux from the two other retailers but had not heard anything from Premier Cru. He called and was told that the wine was being bottled but would come soon. He was told to call back in six months. He did, and then heard: “It’s coming. It’s on a barge. You orders are safe. Don’t worry about it.” He kept calling every six months and got reassurances – and excuses – every time. Yet he never received the wine.

Dr. Lomboy said the company owes him around $44,000 for five Imperials of Chateau La Tour, Chateau Mouton, and five cases of other Bordeaux wines. “Never in 25 years (of collecting) have I had a retailer not deliver futures,” said Dr. Lomboy. “There’s a lot of anger. That’s money I work hard for. I work 12 hours a day in the cath (catheter lab). This is the first person who stiffed me in 25 years of buying wine.”

At least 11 other Premier Cru customers had similar experiences and filed lawsuits in California and in federal court. The suits have been put on hold now that the company has filed for bankruptcy, but they tell tales of enormous sums expended for wine that was never delivered.

Lawrence Wai-Man Hui, a collector in Hong Kong, said in his lawsuit that he had spent $981,00 from 2009 to 2012 for 1,591 bottles of wine, but had received fewer than 10 bottles. His purchases included bottles of Haut Brion, Cheval Blanc, Mouton Rothschild, Margaux, and Petrus.

Employees of Premier Cru kept telling Hui that his wine was on the way, but it never arrived. Meanwhile, some of the same wine that Hui ordered was available elsewhere. When Hui was not able to negotiate a refund, he sued Premier Cru, accusing it of fraud and misrepresentation, according to the lawsuit. Fox admitted to me in October that the company was having some cash flow problems, but he dismissed the charges of many of the lawsuits as misunderstandings. Fox said that some of those customers were unfamiliar with the length of time it took for pre-arrival and en primeur wines to arrive in the United States.

“Most of these, or all of these, are from people, mostly Asians, who are relatively new customers who are not used to the extended length of time for delivery,” said Fox. “They are feeling insecure because they are not from the area. I think they are reacting to that insecurity and I can’t blame them for it.” Fox said that he and Ortega had put their building on the market for $7.5 million, in part to ease the cash crunch. The price has since been lowered to $6.8 million. Fox and Ortega’s LLC, which holds the property, still owes Alameda County $133,000 in unpaid taxes. The Community Bank of the Bay has liens against the property as well.

The business deteriorated in the last few months of 2015 as calls from angry customers grew. One Premier Cru employee who worked in the retail department said as wine chat rooms exploded with speculation about what was happening, the phones lit up and walk-ins increased. The customers demanded to know where their wine was or when it would be shipped – questions that the workers could not answer.

“We were there to get yelled at,” said the employee, who asked that his name not be used because he still works in the wine world. “When the people coming in who were irate outnumber the nice customer interactions, you get the idea something is wrong.”

The former employee saw Fox a number of times during this period. Fox never mentioned that the company was in trouble.

In late December, Premier Cru suddenly shut its retail operation. Fox posted a sign on the front door: “We have transitioned to ONLINE SALES only. We apologize for the inconvenience.” A woman’s voice on the company’s outgoing recorded phone message said: “Due to the high volume of calls, we are unable to answer the phone right now and check on the sitehttp://www.murrieta.uptownjungle.com. We are currently transitioning to online sales only.”

Three weeks later, the company filed for bankruptcy. On Feb. 8, Fox filed for personal bankruptcy, stating he owed $50 million to $100 million but only had assets of $50,000. He listed more than 9,000 creditors, presumably the ones listed by Premier Cru. He moved into a $2,700-a-month rental house in Concord, CA, where the median household income is $66,086, according to court documents.

“The answer [to] the question, ‘What happened to the money?’ is likely to be contained in that computer,” Kasolas wrote in a motion. Fox eventually complied with the court’s order.  Kasolas then asked to hire a former Premier Cru IT technician, Brian Nishi, to interpret the purchase and sales information stored in the company’s computers. The request revealed information that showed just how desperate Fox must have been in the second half of 2015. Fox, it turns out, had charged $25,000 on Nishi’s credit card without permission, according to court documents. When Nishi, who had started working for Fox when he was a student at UC Berkeley more than 20 years earlier, discovered what happened, Fox repaid his debt in wine, according to court documents. Nishi is also owed $2,500 in back wages.

Kasolas is still trying to figure out what to do with the cases and cases of wine stored in Premier Cru’s warehouse. Ultimately, he intends to sell it off to pay Premier Cru’s secured distributors, and if any money is left distribute it to the 9,200 people who have purchased wine but never got it delivered.

An initial inventory suggests that there is about $200,000 worth of wine that is unencumbered, and Kasolas said he will seek the court’s permission soon to sell it to pay expenses, which run about $25,000 a month.

One of the most challenging issues for the trustee is how to communicate with all the creditors and determine what they owned. The trustee plans to reactivate the now-defunct Premier Cru website and use it as a portal to communicate with the creditors and have them file information about their claims with the court. Creating an electronic system of communication will also save money, as it costs about $5,000 each time the court does a mailing to the 9,200 creditors.

“What do we have, whose is it, and how are we going to sell it?” Bankruptcy Judge William Lafferty said in court. “The creditors don’t know where they stand,” said Mark Bostick, the attorney for Kasolas. A lucky 120 former Premier Cru customers may be fully reimbursed because their orders were in boxes labeled with their names or somehow segregated and labeled. Under California shipping law, products don’t belong to the customer until they are being shipped out. That is why the bulk of Premier Cru’s wine belong to the company rather than people who paid money for specific bottles. Even if the creditors get some funds from Premier Cru’s liquidation, it will be pennies on the dollar.

The next court hearing is Feb. 24. The FBI has set up a special email for people to contact them. It is premiercru.complaints@ic.fbi.gov.