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Unusual court proceedings mark bankruptcy auction for Rabbit Ridge Winery property scheduled for June 10 auction

NOTE: Extensive links to court filings and other documents are available to premium Wine Executive News Subscribers at the bottom of this article.

 


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Rabbit Ridge Winery in Paso Robles is facing the bankruptcy auction hammer on its winery property for the second time in two years. And this, after the second Chapter 11 in less than two years.

 

The auction is being conducted by Hilco Global Real Estate. The bid deadline is June 10.

 

According to a Jan. 10, 2020 Chapter 11 filing by winery owner Erich Russell and a second one by last-second owner Northern Holding, LLC on Oct. 28, 2020, drought impacts on well-water and on the winery’s vineyards drastically reduced the available crop which hurt wine production.

 

The bankruptcy auction, according to the filings, comes after at least five years of financial problems paying loans from its main creditor, Farm Credit West. San Luis Obispo County records show that the property narrowly escaped a previous courthouse auction that had been scheduled for March 5, 2007.

Two Chapter 11 filings, same property?

Winemaker and winery founder Erich Russell first filed Chapter 11 in January 2020 when Farm Credit West threatened foreclosure on the over-due loans. By June 2020, Court filings indicate that Russell requested that the bankruptcy action be dismissed because he had reached agreement with his creditors.

 

That situation obviously deteriorated because on October 28, 2020, Russell transferred the winery property via quitclaim deed to Northern Holding, LLC.

 

According to the California Secretary of State’s Business Search Database, that LLC is controlled by Russell’s financial advisor Leroy Codding.

 

San Luis Obispo County Records, via ParcelQuest,  indicate that the transaction was valued at $21.2 million. (See images at the bottom of this article.)

 

 

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Northern Holding, LLC filed for its own Chapter 11 on the same day it acquired the Russell property.

 

According to a Dec. 23, 2020 filing by Northern Holding,

“Minnesota LLC created on April 30, 2012 for the purpose of acquiring and restructuring a wine importer/distribution company in St. Paul, MN. Subsequently, the business held a minority stake in a newly formed import company and later disbanded in spinoffs. Leroy Codding is the sole and managing member of the Debtor.

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The California Secretary of State’s Business Search Database shows that “Northern Holding LLC” was initially registered on 11/05/20.
Significantly,  Northern Holding, LLC’s voluntary Chapter 11 petition — filed on October 28, 2020 — was made 8 days before Northern Holding LLC was actually a legal corporate entity in California.
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Can the sale take place?

Attorneys contacted by Wine Industry insight all agreed that Northern Holding LLC may have had no legal standing to become the owner of real property, or to file a bankruptcy partition because legally it did not exist in California  when it was quitclaimed the estate, and when it filed Ch11. As a result, Northern Holding LLC may not actually have the authority to complete the sale.
According to one highly experienced and respected bankruptcy attorney not connected with this case:

‘I have seen cases where a suspended corporation is nonetheless permitted to file Chapter 11.

‘What is surprising about this is that it is an example of what is known as the ‘new debtor syndrome.’  That is, when a person or entity with other generally profitable assets spins off real property in foreclosure to a new entity to get the benefit of the automatic stay all the while keeping his other affairs outside the Court’s jurisdiction.  There are scores of published decisions granting relief from stay and imposing significant  Rule 11 sanctions on Debtor’s counsel who do this.”

 Quitclaim Transfer Data

Source: ParcelQuest.

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Premium Links

  • ECF112-SUPPLEMENT-BY-US-TRUSTEE-SUPPORT-MOTION-TO-DISMISS-OR-CONVERT-051321.pdf
  • ECF-1-NorthernHoldings-ECF-VoluntaryPetitionorNon-individualsFilingBankruptcy-102820.pdf
  • ECF-38-STATUS REPORT-DECLARATION-LEROY-CODDING-122320.pdf
  • ECF100-1Russell-Chapter11-ArgumentForVoluntaryDismissal-051120.pdf
  • ECF100-2Russell-Chapter11-051120.pdf
  • ECF17-NorthernHoldings-AssetsAndLiabilities-111020.pdf
  • ECF28-NorthernHolding-SupplementalDeclarationDebtor-OppositionToMotionForReliefFromAutomaticStay-112320.pdf
  • ECF3-NorthernHoldings-Chapter11-StatementOfRelatedCases-102920.pdf
  • ECF59-NorthernHoldings-Chapter11-ReceiptsAndDisbursements-021621.pdf
  • ECF60-NorthernHoldings-TrusteeFiling-HUGE-44MB-FILE-021621.pdf
  • ForeclosureSaleNotice-2019-SLO.pdf
  • NorthernHoldings-ECF60-TrusteeNOTICE OF MOTION AND MOTION BY UNITED STATES TRUSTEE TO DISMISS OR CONVERT CASE-021621.pdf
  • NorthernHoldings-SoS2-RetrievePDF-317.pdf
  • NorthernHoldingsLLC-Calif-SoS-Registration.pdf
  • brochure-paso-robles-ca-2.pdf