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The CEO in charge of the post-Chapter 7 bankruptcy owner of Rabbit Ridge Wine Sales (RRWS) has until June 20 to respond to a contempt of court action related to a long laundry list of financial and managerial violations alleged by U.S. Trustee Richard Marshack. The deadline is the fourth postponement Codding has requested since the original April 1, 2022 request for contempt of court filed by Marshack.
According to court records, that CEO -- Leroy "Lee" Codding IV -- was contracted by the court to manage the RRWS's estimated 200 tons of standing grapes of the former Rabbit Ridge Winery north of Paso Robles in order to preserve the crop's asset value for creditors. For background, see: Rabbit Ridge Winery Bankruptcy Trustee Hires Farm Operator for 2021 Harvest; Most Grapes Still Unsold
According to the Trustee's 392-page request for Contempt of Court filing (full document for premium subscribers) Codding failed to pay labor and other contractors and did not properly account for up to to 200 tons of grapes and their income from the vineyards. The Trustee's filing assets -- among numerous other allegations -- that at least $140,000 in cash from sales remains incompletely accounted for and that other substantial assets may have been hidden.
Codding is expected to file a court brief reply to the charges.
According to court and other government records Codding, acquired RRWS On October 27, 2020 through his Northern Holdings, Inc. corporation in a last-hour series of complicated corporate and bankruptcy transactions that managed to transfer a number of valuable intellectual property assets to a new owner controlled by Codding. For previous details, please see: Rabbit Ridge’s New Owner — Fluid Wine Fund I — Poised For Future Built On Tangled Bankruptcy Assets. The transfer and new structure have their roots in a personal bankruptcy filed in January 2020 by Erich Russell, Rabbit Ridge founder and winemaker.
Those actions and proceedings, have been reported in previous issues of Wine Executive News:
The following text is taken verbatim from the show-cause contempt filing of April 1, 2022. While it is unusual for court filings of any sort to be legible, coherent, and comprehensible by readers of a non-legal education, the Trustee has created a logical and mostly chronological exposition of the many moving parts of this complicated and confusing legal situation
Because of that, Wine Executive News has examined the 392-page filing and included direct, unedited excerpts in the article below.
In several instances, new text has been added in a dark brownish red hue to add a needed explanation or emphasis. In addition, original, unaltered text has occasionally been emphasized in bold. Other than that, the text below consists of direct quotes from the filing. Paragraph spacing has been added to avoid very ling, unbroken expanses of text. Most right-hand margins are those from the filing except in cases where lines needed to be adjusted for readability.
Further, all exhibits referenced in the test have been included in the PDF.
The full 392-page PDF is available at this link for premium subscribers.
Trustee hoped to save grape crop, had no choice but to work with Codding
According to Marshack's filing, he disagreed with property lienholder Farm Credit West who considered the grape crop worthless:
Trustee was appointed upon conversion of a Chapter 11 case in the middle maneuvers of the growing season for hundreds of acres of vineyard crops in Paso Robles, California. Left with no other viable options, and the refusal of the secured creditor Farm Credit West, FCLA (“FCW”) to fund any farming operations to preserve the value of the crops, Trustee negotiated an agreement with Codding, individually, for Codding to serve as the temporary farm operator and to advance all direct farming expenses. Codding was the pre-conversion managing member of Debtor and was intimately familiar with the farming operations.
Unfortunately, Codding abused his position of trust and confidence, and directly violated the Court’s order directing all proceeds of crop to be deposited with Trustee. Codding intentionally concealed his diversion of funds and has thus far refused to provide a complete accounting to Trustee. Trustee must preserve and enforce the Estate’s rights to the diverted funds of approximately $140,000 or more and respectfully requests issuance of an order to show cause.
Under the Farm Operator Order, Trustee had the right to reimburse Codding for his actual services and expenditures. But, despite Trustee’s requests, Codding has not yet provided sufficient information to determine at this time the amount of his alleged administrative claim. Pursuant to a written agreement signed by Codding after the unauthorized diversion was discovered by Trustee, Codding claimed up to
$232,000 in advanced expenses as reimbursements. In the event Codding is allowed any administrative claim, Trustee retains the right to offset or reduce such claim by the funds already
taken by Codding.
Excerpts From "Notice And Application For Issuance Of An Order To Show Cause Re: Civil Contempt For Willful Violation Of Automatic Stay And The Court’s Farm Operator Order; Memorandum Of Points And Authorities; Declarations Of Richard A. Marshack, Tinho Mang, And Lori Ensley; Request For Judicial Notice.}
Why Was This Action Filed?
Codding’s actions severely damaged the Estate and he abused his position of trust with the Court and Trustee.
"To date, it remains unknown whether Codding diverted or concealed any more grape sales than have been discovered to date because he continually disclosed that the crop was worth in excess of $700,000 but Trustee has only received gross proceeds of around $240,000 with no expectation of any further payments from known third-party purchasers.
Between the funds received by Trustee and the funds Codding admitted to receiving, there remains a discrepancy of $300,000 or more which has never been sufficiently explained to Trustee.
Because Codding has refused to provide Trustee with information sufficient for him to make any distributions from the cash collateral grape proceeds, Trustee has no choice but to seek an order compelling Codding to appear and show cause why he has violated the Court’s order and Section 362(a)(3).
The text below has been redacted. Full text available to premium subscribers.
U.S. Trustee: Factual Background
On October 28, 2020 (“Petition Date”), Northern Holding, LLC, a Minnesota limited liability company (previously defined as “Debtor”) filed a voluntary petition under Chapter 11....
Mr. Russell defaulted on the loan obligations and, to stave off foreclosure
The Bankruptcy Case
Farm Operator Agreement & Drilling Motion
Upon Trustee’s appointment, he was presented with a growing problem. Specifically, on the hundreds of acres of Debtor’s farmland, thousands of grape vines were growing without any consent to use cash collateral, no debtor-in-possession financing, and no institutional knowledge at the
Trustee’s office regarding how to cultivate, maintain, harvest, and sell agricultural goods, especially
Codding accused of violating order to vacate winery property
Rabbit Ridge attorney resigns
- Trustee’s Discovery and Investigation of Codding’s Contempt.
Initially, after entry of the Operate Order, Codding failed to provide the Trustee with any information on outstanding grape purchase contracts.
Undisclosed grape contracts
A true and correct copy of an e-mail dated November 15, 2021, from Codding to Trustee’s counsel stating that there were only five grape purchase contracts4 is attached to the Declaration of Tinho Mang (“Mang Declaration”) as Exhibit “7.” This representation was, once again, false.
Payment to be made to Codding CFO Steve Jones and Humanity Wine Company
- Codding admitted to the diversion of approximately $140,000 in proceeds
Codding visits Trustee office demanding $120,000 check, leaves empty-hamded
Codding demands $262,332 from Trustee
"Codding unleashed a barrage of written vulgarities, obscenities, and threats
to Trustee and Trustee’s counsel"
Known Unpaid Vendors
Farm labor contractor unpaid
Water pump contractor unpaid
Wineries made have paid for grape harvest & shipping in exchange for lower per-ton price
Codding may have willfully violated the Turnover Order.
Unannounced Trustee agent visit reveals violation of turnover order
Violations "probably" continued
Codding has, by clear and convincing evidence including his own statements and testimony,
violated the Court’s express orders, and he has unlawfully received $140,960.31 constituting
While Codding may have once had a right to reimbursement (and Trustee preserve the Estate’s rights regarding setoff), Codding has to date failed and refused to produce documentation showing that he has an entitlement to the extent of reimbursements that he claims. Absent such proof, Trustee cannot permit Codding to retain the $140,000 in diverted funds and Codding must return all such funds to be distributed by Trustee according to 11 U.S.C. § 726 and the consent of the secured creditor Farm Credit West, which holds a lien on such proceeds.
The Court should issue an order to show cause re: civil contempt and direct Codding to appear and show cause why he should not be held in civil contempt for his violation of the Operate Order, Turnover Order, and automatic stay and be required to fully compensate the Estate for damages caused by his contumacious conduct.
The order to show cause should also require Codding to show why the Court should not order him to fully
account for the receipt and disbursement of all estate property, to produce all documents necessary to
establish the disposition of all estate property and its proceeds, and to turn over to Trustee all estate funds
Declaration of Trustee Richard A. Marshack
Codding breached most provisions of the Farm Operator Agreement.
On December 17, 2021, after I confronted Codding about his concealment and diversion of grapes to Don Brady, Codding sent an e-mail to me with a lengthy explanation of the extent of his diversion of funds and grapes from the Estate. A true and correct copy of this email is attached as Exhibit “11.” Specifically, Codding admitted to having sold grapes owned by Northern Holding, LLC for the benefit of his company Rabbit Ridge, in the following amounts totaling $140,960.31
- Anarchist $30,000 (I am informed the corporate name is Cathartes Aura LLC)
- Graveyard $3,285
- Nicora $44,000
- O’Neill $22,297.89
- Pali $30,877.52
- Rangeland $7,752
- Sycamore $2,747.90
Codding claims to be owed $400,000
Codding sends written threats to Trustee
- Codding’s diversion and concealment of approximately one-third of the known crop proceeds has caused severe damage to the Estate, especially since he now refuses to provide documentation for his operating expenses to allow me to evaluate his requests for reimbursement.
- His threats of litigation and failure to provide documentation has left me with no choice but to seek an order of the Court to preserve the rights of the Estate.