Napa winery embroiled in dispute over money

A bitter behind-the-scenes legal battle involving the famed Joseph Phelps Vineyards in Napa Valley has erupted into public view following a judge’s order that the winery pay $24 million to two former employees.

Tom Shelton, the winery’s former CEO and a wine industry luminary who died in July, and former Phelps winemaker Craig Williams entered into binding arbitration with the winery in 2007 over a dispute regarding their equity stake in the company.

But what appeared to be an effort to resolve the issues privately spilled out in public Wednesday after the attorney for Shelton and Williams issued a news release accusing the winery of stonewalling on paying the money.

“Everyone in Napa knows what Tom Shelton and Craig Williams did for the Phelps brand and the Phelps family,” attorney Forrest Hainline said. “It is time for the Phelps family to do the right thing.”

Ed Rosenfeld, the attorney representing Phelps, issued his own statement accusing Hainline of media grandstanding and providing misleading information about the case.

Rosenfeld said the winery made it clear it would seek a review of the ruling on the day the judge issued the arbitration award.

He said Shelton and Williams were paid $35 million in 2004, making them among the highest-paid employees in the wine industry, and that their lawsuit against Phelps stemmed from their dissatisfaction at not making more.

Their original lawsuit against Phelps asked for $126 million, according to Rosenfeld. In response, the winery filed claims against the two men asserting a breach of contract and fraud.

Hainline said the two men simply wanted to be “fairly compensated” for their 40 percent stake in the winery, which was founded in 1972.

Bill Phelps, the winery’s current chairman, declined comment Wednesday when reached at the Spring Valley facility overlooking St. Helena.

Retired Judge William Bettinelli ordered the winery on Sept. 9 to pay roughly $12 million apiece to Shelton and Williams to settle the case.

But on Wednesday, Hainline filed motions in San Francisco Superior Court seeking a November court hearing to confirm the judgement.

The petition also demands that the winery pay attorneys’ fees.

Rosenfeld said the winery had refrained from making public comments during the dispute out of concern for Shelton, who died of a brain tumor at age 55 in July, leaving behind a wife and five children.

But Hainline accused the winery of vindictiveness, saying it “chose to pursue its baseless legal claims against Mr. Shelton as he was dying from a brain tumor.”

In addition to his work with Phelps, Shelton served on the board of directors of the Napa Valley Vintners from 1997 to 2001. He helped the trade organization, which represents some 300 local wineries, work to create legal protections for the Napa Valley name, provide farmworker housing and win court fights to sell wine directly to consumers in other states.

Under Williams’ guidance, Phelps was fashioned into one of California’s top producers of cabernet sauvignon, including the ultra-premium Insignia label, which can command hundreds of dollars per bottle.

Both men received an equity stake in the winery in 1999, Hainline said. But the Phelps family tried to devalue their shares and attempted to block their sale to a third party, he said. The dispute went to arbitration in 2007 and both Shelton and Williams resigned last May.

In his ruling, Bettinelli concluded the winery had violated California labor law in its treatment of the two men. The judge also rejected the fraud and breach of contract claims that the winery brought against Shelton and Williams.