The state’s oldest estate grown winery is curtailing operations after its largest creditor compelled it to file for bankruptcy.
Gordon Brothers Cellars Inc. and its related vineyard, Kamiak Vineyard Inc., filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code in November, shortly after the Bank of Eastern Washington unexpectedly entered a “confession of judgment” against the Pasco winery, its vineyard, its landlord and its owners.
The vineyard filed on Nov. 6 and the winery on Nov. 17. The two likely will file a joint reorganization plan, attorneys said during a December court hearing.
Owner Jeff Gordon said the business will survive.
“We just need to work through this,” he told the Tri-Cities Area Journal of Business.
Washington wineries were struggling under the weight of a global wine glut even before the Covid-19 pandemic. This spring, wine economist Christopher Bitter of Vancouver, British Columbia, told the Washington Winegrowers Association the state needed to remove 8,500 acres of vines or close a demand gap of 3 million cases to address the imbalance.
Gordon Brothers, which reported a loss of $330,000 on its 2019 federal income tax return, was not immune. Its primary asset is its inventory of 59,534 cases of bottled wine with a wholesale value of about $8.4 million, according to bankruptcy documents.
Bitter disavowed the term “wine glut.” He wasn’t familiar with the Gordon Brothers bankruptcy. Generally, he said, the industry faces intensified competition from a flood of newcomers.
“Heading into 2020 we had a situation where many Washington wineries were doing exceptionally well, while others were struggling to sell wine and stay afloat,” he said. The pandemic has “magnified” the challenges, he added.
He anticipates more permanent closures as the crisis drags on.
Gordon Brothers will continue to run as a business following a Dec. 4 hearing where a federal judge approved a motion to allow it to access cash. The lender supported the move, which lets Gordon Brothers sell wine and tend its inventory.
In court documents, the award-winning winery and related businesses owned by Vicki and Jeff Gordon said their hand was forced by the Bank of Eastern Washington, which moved to enforce terms of a multimillion-dollar loan secured by winery assets on Oct. 30.
The bank, a holding of Bank of Eastern Oregon, entered a forbearance agreement with the winery and related business in December 2019 after Gordon Brothers posted the $330,000 loss.
As an S Corporation, Gordon Brothers’ income and losses pass through to the owners for tax purposes.
Bank of Eastern Washington obtained writs that allowed it to garnish bank accounts held by the Gordons and their various business holdings, including the winery, the vineyard and IMAX LLC, the real estate company that leases Gordon-owned land to the winery and vineyard at 671 Levey Road, Pasco.
It also sent debtor notices under the Food Security Act to Gordon Brothers customers.
In bankruptcy documents, the Gordons countered the writ was inappropriate and ignored an automatic 10-day stay. With “limited cash flow” due in part to the debtor notices, it had no choice but to file for bankruptcy protection from creditors, it said.
As part of the agreement to use cash, Gordon Brothers offered inventory accounts as collateral and to make $5,000 monthly payments to the bank.
It also adopted an emergency budget for November and December 2020 that precludes it from buying grapes from Kamiak or making rent payments to IMAX, essentially to trim operations.
Vicki and Jeff Gordon are the sole owners of Gordon Estate Winery as well as its Kamiak Vineyards and IMAX. Vicki Gordon serves as one of three elected commissioners for the Port of Pasco.
Gordon Brothers has produced, bottled and sold wine since 1983. Operations are conducted primarily in Franklin County.
It closed its tasting room at Pasco’s Broadmoor neighborhood in 2017, citing lack of business. It reopened at the Port of Kennewick’s Columbia Garden’s Urban Wine & Artisan Village in early 2020, only to be forced to close because of the Covid-19 pandemic. The port confirmed it is current on its lease.
The closure is apparently temporary.
Gordon Brothers attributes about 5% of its business to California, according to tax documents filed with the bankruptcy case.
Gordon Brothers said it owed
$1.4 million to the bank in the November bankruptcy petition, its largest debt. The second largest debt is a $1.7 million loan the Gordons made to their business.
The bank said it was owed $3.2 million in December 2019. The winery said the balance is closer to $2.75 million.
The loan is secured by the assets of Gordon Brothers, including its inventory, equipment and accounts receivable, as well as the real estate assets of IMAX LLC, including personal property. The bank is also the first lien holder for 45 acres of developable property overlooking the Snake River with a value of at least $1.6 million.
Gordon Brothers asserts that the Bank of Eastern Washington loan is “over secured,” meaning the assets are more than sufficient to cover the balance.
American Express Bank filed a financing statement against the debtors to secure an $11,000 balance.
Desert Hills Realty valued its 260-plus acres of farmland at $6.8 million. The property includes 104 acres of vineyard, as well as 41 acres of cherries, 45 acres of alfalfa and 75 acres of non-farmable land. The estimate is based on the current market price of $17,500 per acre.
Other assets include $700,000 in equipment, $484,000 in cash and $475,000 in accounts receivable.
Under its emergency budget for 2020, Gordon Brothers contemplates “very limited new bottling” in November and December, no purchase of grapes from Kamiak or rent payments to IMAX.
Gordon Brothers et. al. are represented by Roger W. Bailey and Joshua Busey of the Yakima law firm Bailey and Busey PLLC. The case is assigned to U.S. Bankruptcy Judge Whitman L. Holt. Kevin D. O’Rourke of Spokane is serving as trustee.
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