Kluge, Sweely: Putting a cork in it

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Governor Bob McDonnell was among friends when, on October 22, joined by his wife Maureen and the state’s Secretary of Agriculture Todd Haymore, McDonnell visited King Family Vineyards for the ceremonial signing of legislation that repurposed state wine tax revenue towards marketing and promotion. McDonnell is an enthusiastic wine advocate, and he reminded all who were on hand that Virginia now boasts a $1.3 million budget to promote local wines. Not only that, statewide sales of Virginia wine increased by 13 percent in the past year. 

But as with any growing industry, it’s not blue skies for everyone. At least two of this region’s largest wine operations are in foreclosure. 

Sweely Estate Winery, a sprawling operation in Madison County, is in foreclosure only six years after Jess and Sharon Sweely purchased the property known as Weaver Farm. The 295-acre property now set for the auction block on November 18 at 11 a.m. on the steps of the Madison County Circuit Court, includes a 17,904 square-foot hospitality center, state-of-the-art winery, and an “older home,” according to auction company Tranzon Fox. Nearly 40 acres are under vine. The Sweely family always had grand aspirations for their business, upgrading their winery (in excess of 27,000 square feet) to enable production of 25,000 to 30,000 cases. Most wineries in this region produce between 1,000 and 10,000 cases, by comparison. But Sweely was plagued by distribution issues, leaving winemaker Frantz Ventre to forego producing a 2010 vintage, instead selling his grapes to other winemakers. 

Tranzon Vice President Jeff Stein said “the response to this sale has been very strong. …We’ve done nationwide marketing and have had interest from across the country.”

Neither Ventre nor Sweely General Manager Marcie Siegal returned calls.

Over at Kluge Estate Winery and Vineyard, where owner Patricia Kluge has long espoused a worldwide vision for her product (often distancing herself from the Virginia industry), lenders are moving swiftly after years of rumored financial collapse to redeem a $34.8 million loan. Farm Credit of the Virginias took control of operations and fired staff (Farm Credit also has a second lien on Albemarle House, until recently the personal home of Kluge and Bill Moses. The primary lien of $22.8 million is held by Bank of America). At the end of September, Trevor Gibson, Kluge Winery’s chief financial officer, left after five years. And late on Friday, October 29, Farm Credit also filed a personal lawsuit against Moses and Kluge as guarantors of the winery loan, which was originated in 2007. Moses followed with an unusual statement. Blaming a “perfect storm” of economic collapse that has also hit the wine industry, he said Kluge’s pace of growth “was not sufficient to satisfy the company’s banking consortium.”

“We have been, and are continuing intense discussions with various potential partners, and have kept our Bank apprised of these positive developments. From our perspective, it is disappointing that at the very moment when these talks appear to be most productive, they have chosen to take the initial steps towards dismantling the winery as an operating business as well as an auction of the property,” he wrote.

Bill Shmidheiser, an attorney representing Farm Credit, confirmed the auction of the winery and equipment will be held on the property on December 8. 

Kluge, once dubbed “the richest Brit in Virginia” by the U.K. tabloids after her divorce from billionaire John Kluge, has long been subject to rumors about financial and managerial instability. They resurfaced in the past couple of years as the company ran through numerous winemakers and in 2009 when Kluge and Moses put Albemarle House, their 45-room English style manor, on the market, initially for $100 million. At that time, she was pressed to say the move had no implications for winery operations, a sentiment she repeated when, earlier this year, she brought most of the contents of the house to auction. Asked if proceeds from those sales were used to satisfy any of the Farm Credit debt, which originally totaled $38 million, Shmidheiser said, “No comment.”

This is not the first of Patricia Kluge’s businesses to hit the skids. Fuel, a gas station/restaurant concept that she predicted would go national, abruptly closed in June, 2007. Vineyard Estates, a proposed development of turnkey mansions that she promoted in the Robb Report and the New Yorker, did no better; the sole property went into foreclosure earlier this year. Sonabank has the lien on that project. Kluge and Moses covered the debt to the tune of $3.7 million at that time. Also related to that project, realtor Frank Hardy sued the couple for $1.9 million in February for breach of contract; that case was settled out of court.

Albemarle County’s largest wine operation has 220 acres under vine. One former employee, speaking off the record, described Kluge’s chaotic environment. “It’s like a reality TV show,” the former employee said. “I always said if they really wanted to make money, that’s what they should do.” 


Update, November 8, 2010, 11 a.m.
 
Through a spokesperson, Bill Moses referred inquiries to Edward B. MacMahon, Jr., a Middleburg attorney who is representing Moses and Patricia Kluge in Farm Credit’s civil suit. “We’ll file an answer in the next 21 days,” he says, adding, “those allegations are ridiculous.”
 
While MacMahon acknowledges they transferred 7.18 acres into a trust for Kluge’s son, John W. Kluge, Jr., he says, “they have not fraudulently transferred anything. Farm Credit is not the only person in the world interested in that Albemarle County property.”
 
On the matter of unpaid property taxes, MacMahon says he “doesn’t know anything about that.”
 
Will Kluge Estate Winery and Vineyard find a white knight before the auction scheduled for next month? “They’re trying everything they can to get strategic partners to keep the winery open,” MacMahon says. “The bank had promised that they would keep the winery open, and [Moses and Kluge] were surprised that they would instead do everything they could to shut down operations.”

Updated Monday, November 8, 2010, 9 a.m.: Some two weeks after going into foreclosure, Sweely Estate Winery announced this morning that the auction of the Madison County winery, originally scheduled for November 18, has been cancelled. Jeff Stein, vice president of auction house Tranzon Fox, confirmed that “the sale has been cancelled pursuant to a negotiated agreement between owners and lenders. They’re in workout.”

Jess Sweely, proprietor of the winery, one of the area’s largest, told C-VILLE there will be “no change in operations.”  In a statement released last night, he said, he “regrets that the lender chose to advertise a foreclosure sale when they were at the end of finalizing their business terms going forward. Nevertheless, Mr. Sweely felt that it was inappropriate to comment prior to completing his negotiations with the lender.”

Updated Tuesday, November 2: The civil suit filed by Farm Credit of the Virginias against Patricia Kluge and William Moses contends that while Kluge and Moses were in negotiations to restructure their loan in September, they transfered 7.18 acres and property to a trust in the name of Kluge’s son, John W. Kluge Jr. Patricia Kluge is the trustee for the John W. Kluge, Jr. Trust. The bank contends that such a gift rendered Kluge and Moses insolvent and that they made the gift "for the purpose of shielding and/or concealing assets from [the bank’s reach.] Alleging fraud, Farm Credit wants the gift voided. Moreover, Farm Credit seeks a lien on the land and property that was transfered to the Kluge Jr. Trust and that the property be sold towards satisfying Kluge and Moses’ debt to Farm Credit.

 

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