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Courtwatch: Mayacamas partners want Charles Banks to step down as director

Lawsuit alleges Banks diverted more than $500,000 from Mayacamas' wine sales to his company, Terroir
by Kerana Todorov
April 14, 2017

Former Screaming Eagle co-owner Charles Banks, who pleaded guilty to fraud earlier this month in Texas, is being sued by his partners at historic Mayacamas Vineyards for breach of fiduciary duty.

Members of the Schottenstein family, the real estate magnates from Columbus, Ohio, want Banks to step down as director at the Napa Valley winery, according to the complaint filed April 10 in Napa County Superior Court.

Banks’ felony conviction places Mayacamas’ Type 02 winegrower’s license and Type 09 beer and wine importer’s license, along with its federal wine producer’s permit, “at serious risk of suspension or revocation,” according to the complaint.

A special meeting was set for April 7 to remove and replace Banks. Banks said he would attend with his wife and a third director, according to the lawsuit. They were no shows. Banks, who was responsible for the company’s day-to-day management, operations and business, could not be removed because of there was no quorum.

Banks, 49, on April 3 pleaded guilty in federal court in San Antonio, Texas, to one count of wire fraud in connection with a million-dollar deal with NBA star Tim Duncan, who retired in 2016 from the San Antonio Spurs. Banks, who lives in Atlanta, Ga., is out of custody on bond. He is scheduled to be sentenced June 27.

In exchange for Banks’ guilty plea, prosecutors dropped three other counts of wire fraud, each of which could have sent Banks to prison for up to 20 years.

Banks took a number of steps after he was indicted in September to raise money for his costly legal defense and the expected fines and other expenses, according to the civil lawsuit filed in Napa on April 10.

The plaintiffs include the Schottensteins, referred as All Js in court filings, and CBSchott Inc., the partnership Banks and members of the Schottenstein family created in 2013 to purchase Mayacamas, a winery on 460 acres on Mount Veeder, of which about 50 acres are planted.

The plaintiffs allege Banks diverted more than $500,000 in proceeds from Mayacamas’ wine sales to his own company, Terroir, according to the complaint.

The money was supposed to be commissions owed to Terroir which sold Mayacamas wines. But Terroir never issued invoices or provided “satisfactory accounting,” according to the civil lawsuit.

Banks also reneged on a commitment to pay Mayacamas’ operating cost shortfalls, instead demanding that the bank’s line of credit to the winery be used, according to the court filing.

“As a consequence, necessary capital improvements were not made, the bank line of credit was exhausted, and All Js was left to finance the operations of Mayacamas and Lokoya on its own. Lokoya is a business entity owned by Mayacamas.

Banks in the fall sued his partners in Napa County Superior Court to dissolve the partnership, a lawsuit that was dismissed in January. According to a court document, the Schottensteins wanted Banks to pay his share of Mayacamas-related expenses – more than $467,500.

Mayacamas in 2014 obtained a $5 million line of credit, according to the lawsuit filed April 10. Mayacamas increased its bank line of credit to $7.5 million in September 2016. The plaintiffs claim in the complaint filed April 10 that the partners had agreed to spend the money on capital improvements, with the Schottenstein partners and Banks paying operation costs.

The plaintiffs also allege Banks marketed Mayacamas for sale without his partners’ consent and then refused to disclose to All Js the names of interested buyers, according to the lawsuit. All Js also allege Banks stopped paying his share of the winery’s operating costs, according to the complaint filed in Napa.

Joseph Schottenstein, an All Js member, asked Banks on April 3 to resign as director and officer of CBSchott, Mayacamas and Lokoya, the business entity that owns Mayacamas. But Banks refused to step down.

Banks is majority shareholder of Terroir Capital, a company that has investments in wineries in California and overseas. Terroir’s portfolio includes Qupé, Agharta, Cultivate, Leviathan, Muldderbosc Vineyards in South Africa and Trinity Hill in New Zealand.

New Zealand’s Overseas Investment Office, which reviews overseas investments, is questioning Banks’ “good character” issue because he is a winery investor in Trinity Hill. Banks’s Terroir Capital manages the Terroir Winery Fund which acquired Trinity Hill in 2014. Foreign investors in New Zealand must maintain “good character.”

“In light of Mr Banks’ guilty plea, the OIO is considering whether Mr Banks remains of good character,” according to a news release. “The OIO has met Terroir Winery Fund’s representatives to make it clear that in our view Mr Banks is unlikely to meet his on-going obligation of good character. If Mr Banks is not of good character, then we will seek to have him removed as an individual with control of sensitive land in New Zealand.”

U.S. Federal prosecutors indicted Banks in September 2016 for misrepresenting to Duncan the terms of a $6 million loan in a sports apparel company with financial ties to Banks. Banks had misrepresented the money as a modification of an earlier $7.5 million loan to the same company, according to federal court records.

Duncan has sued Banks. However, his federal lawsuit was stayed when Banks was indicted. Still outstanding is a civil federal civil complaint the U.S. Securities and Exchange Commission filed against Banks in connection with the loans. Federal officials have been negotiating a resolution in that case since January, according to court filings.

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