Greenberg vs Koch Trial: Part 4

Day Three: Thursday 28th March 2013

Witness: Eric Greenberg – continued

Eric Greenberg returned to the witness box, and was reminded he was still under oath.

John C Hueston continued his questioning, opening with the statement that in April 2002 Serena Sutcliffe and Jamie Ritchie (both of Sotheby’s) had visited Greenberg’s home, to which Greenberg replied “no”.  Hueston returned that they came to his wine cellar in April 2002; Greenberg said that Hueston was missing a person, Robert Sleigh, who was also there; pressed, he agreed that Ritchie and Sutcliffe did come to his cellar then, and looked around his cellar for around an hour and a half, as he was exploring selling part of his wine collection through Sotheby’s.  Greenberg agreed that he was with them the whole time, although people might have gone off in different directions at certain times.  During this, Ms Sutcliffe asked various questions about the wine and sources.  Greenberg disputed that it was “a lot”…  Hueston then played Greenberg’s deposition to him, in which he stated that she had asked him “a lot” of questions, and Greenberg somewhat grumpily conceded the point that he had said “a lot”.  He also conceded – once again after having been “reminded” by his deposition – that Sutcliffe had told him that if he had bought from Royal that it is probably bad wine.

This comment from Serena Sutcliffe panicked Greenberg, because he did not know he had fake wine in his cellar, and on her saying this realised he might have a big problem.  He denied that this was because Serena Sutcliffe is one of the world’s foremost experts in wine, but because on further inspection, he found fake wines.  She had tipped him off, and she was credible.  Hueston asserted that Greenberg had retained an attorney because, in part, Serena Sutcliffe was one of the world’s foremost wine experts, and her opinion gave him cause for concern.  Once again, Greenberg’s deposition was played, and it confirmed that he had, in that, said that he recognised her as one of the world’s greatest experts in wine.  One of the things she had said was that photocopied labels would be an indicator of a counterfeit wine.

During her visit to Greenberg’s cellar, Ms Sutcliffe had raised questions about the integrity of some of the bottles, and had said they would need to do a full auction inspection.  Hueston added that they had concerns specifically over some of Greenberg’s most valuable wines.  Greenberg prevaricated, pretended not to understand the question, and requested a definition of “most valuable wines”, at which point Hueston replied that he was just going to play his (Greenberg’s) deposition testimony.  He then changed his mind, and asked if Greenberg recalled “Ms Sutcliffe stating to you words to the effect of: I have concerns over some of your most valuable wines?  Do you recall that or not?”  Greenberg asked if he meant those exact words (He’s trying my patience now!) and Hueston replied “or words to that effect”.  Greenberg answered that Sutcliffe had said that she would need to inspect all wines to make sure she was comfortable with them.  Hueston asked “So you don’t recall her expressing any specific concerns about the most valuable wines in your collection, is that your testimony?”  Greenberg again evaded the question (Is this the moment where he seals his fate in the eyes of the jury, I cannot help wondering), at which point Hueston specified that among the wines that Sutcliffe saw that raised authenticity concerns were “sections of 19th Century and early 20th Century wines”, adding “Does that help you”?  Greenberg argued that every auction house has concerns about those, so “that would be consistent with Zachys, Christie’s or anyone else”.  Hueston replied he wasn’t concerned with what Zachys or Christie’s thought; he had asked a simple question and asked Greenberg to focus on that: did he remember Sutcliffe expressing her concerns about the authenticity of sections of the 19th Century and early 20th Century wines.  Greenberg replied that he recalled she said she would need to verify these, as would any auction house.

Hueston asked if Jamie Ritchie had also spoken about concerns with wines in his cellar.  Greenberg replied that he didn’t talk to Ritchie at all, “not one conversation”.  He denied telling Ritchie during the visit to the cellar or at any time that he had decided to begin discussions with Christie’s because they were less concerned about provenance.  He acknowledged hearing Ritchie testify to this effect the previous day, adding “I also heard a lot of other things that would cause me to doubt anything the man says”.  Hueston replied that this was for the jury to decide.

Hueston then asked Greenberg if Ritchie and Sutcliffe spoke with him about counterfeit wines and the authenticity of wines in his collection.  Greenberg agreed that they talked about it in general, and about three specific bottles.  (I wonder at this point how this can tally with the “not one conversation” Greenberg testified to above.  Perhaps his definition of a conversation is different to mine…)  Greenberg agreed that he had heard Ritchie testify that Greenberg had sold other questionable wines at Zachys, adding that he didn’t believe what Ritchie said.  He denied selling any wines he thought were questionable at any Zachys’ auction; although some wines might have been called into question later, at the time, he thought they were real.  He claimed he thought he did the right thing by giving his wines to the experts (meaning in this context Zachys) to inspect.

Hueston then said that this is why Greenberg had told Jamie Ritchie that if he had any counterfeit wines, he’d sell them through Acker Merrall, “because John Kapon would take anything”.  Greenberg expostulated that this was absurd; he had bought $1million dollars’ worth of wine from John Kapon; why would he do that if he thought the man was selling fakes?  (Why indeed?  Because we know he was… and that Greenberg’s comment on Kapon’s selectivity was nothing if not accurate.)  Greenberg completely denied having said this to Ritchie.

Greenberg then confirmed that, after the possible Sotheby’s sale of his wines in 2002 did not proceed, he spoke to Richard Brierley of Christie’s, who also visited the cellar.  During this visit, Hueston suggested that Brierley indicated that there were some areas that would require further investigation.  Greenberg indicated that it was the other way round.  He testified that he had segregated some wines based on the work he’d done after Serena Sutcliffe’s visit, and indicated to Brierley that these would need to be excluded from any auction sale.

Hueston suggested that Brierley had delivered “what he described as bad news” to Greenberg about the cellar, but Greenberg denied this.  He said that Brierley told him nothing he didn’t already know – he knew, and everyone knew, that he had fake wines in his cellar.  Greenberg denied, however, that he knew that Brierley had concluded that there were problematic bottles sold in the Zachys auction in October 2005.  Hueston noted that the court would hear from Richard Brierley later in the trial.

Hueston moved onto a discussion of the draft consignment agreement with Sotheby’s, and specifically, the email that Greenberg had sent to Jamie Ritchie of Sotheby’s about it.  Sotheby’s had sent the agreement to Greenberg, who had reviewed it, and commented that it was very one sided.  The email had been sent in response to this, and noted that he had a number of issues with the agreement, but in particular “it gives too much sole discretion and enforces warranties on me which I will never assume”.

Hueston then turned to the agreement itself, specifically to the section on representations and warranties.  He highlighted one, being that Greenberg had provided Sotheby’s with any information he had regarding provenance, and that he had no reason to believe that any of it was not authentic.  Greenberg agreed that this was one of the warranties, but stressed that Sotheby’s also wanted him “to indemnify them for any mistakes they made when they would take no liability for those, and that was the liability that I could not assume”.

Hueston noted that Greenberg had, whatever his claims about the reason he did not agree to the contract, suggested a change to the authenticity warranty.  Greenberg felt it was too broad to say “no reason”, and wanted to add in the word “reasonable” – i.e. no reasonable reason.  However, he re-emphasised that the reason he did not sign was because he was not going to indemnify Sotheby’s against their own mistakes.

Greenberg then claimed he had no recollection of getting a draft consignment agreement from Christie’s.  He did, on being shown a copy, remember an email discussion with Anthony Hanson MW of Christie’s about the contract.  Hueston then moved to look at Exhibit 309 – which Greenberg immediately claimed he had never seen. Hueston then pointed out that it has a first cover fax to Greenberg from an Ian Mendelsohn highlighting the changes in the contract, with an attachment document labelled Consignment Agreement.  Hueston then noted that there had been no objections to the admissibility of this document from defendants, and moved it into evidence.  There was no objection, and it was received.

Hueston highlighted one of the representations that Christie’s was requesting, noting it was almost identical in wording to that of Sotheby’s.  Greenberg agreed that the wording was indeed very like Sotheby’s, as was the one saying that the auction house would take no collection liability for people who did not pay their accounts.  Hueston put the representation he was speaking about – that there was no reason to believe the wine was counterfeit – on the screen.  He noted, and Greenberg agreed, that Christie’s never did a sale of Greenberg’s wine.

Hueston did then note that Greenberg did auction his wine through Zachys in 2005.  There was, again, a proposed consignment agreement for this auction, which required Greenberg to make certain representations and warranties.  This document, unlike the others, did not include a representation that he had no reason to believe that any of the wine was not authentic.

Hueston then noted that Greenberg had begun collecting wines in about 1995 or 1996; Greenberg agreed, specifying that these were California wines primarily.  He began selling wines at auction in February 2003, with Zachys.  By this point, he had collected at least 50,000 bottles.  There was some dispute as to whether this was closer to 50,000 or 80,000.

Greenberg agreed that he had been buying wine in part as an investment.  Since late 2001 or early 2002 he had had a wholesale and retail licence, through his company Innovation Wines.  Through this, Hueston suggested he had only to pay sales tax on bottles of wines he intended to drink.  Greenberg replied that he is not a lawyer; he didn’t know the law.

Greenberg agreed that to him, wines are an asset class, just like a stock or a bond.  The vast majority of wines he purchased for investment purposes, he sold at auction – agreeing that he had not intended to drink somewhere between 50,000 – 80,000 bottles of wine!

Hueston suggested that Greenberg had sold the wines he had purchased as an investment when he thought the time was right.  Greenberg responded “No. I purchased the wine no matter what”, which Hueston noted wasn’t the question he had asked, and repeated it.  Greenberg, having initially stated that he was culling about 15,000 lesser wines that would not age, agreed that his deposition was accurate.

Hueston asked Greenberg to confirm that in the October 2005 auction he sold about 17,000 bottles for nearly $9 million.  Greenberg replied that he received only about $7 million after Zachys got their 20%.  (This is an outrageous percentage if it’s true.  Greenberg was clearly badly advised – Chai Consulting clients get much better terms from auction houses.  Although we wouldn’t act for Eric Greenberg.)  Hueston and Greenberg eventually agreed that gross proceeds were in the region of $9 million, and Greenberg received in the region of $7 million.  Greenberg also agreed that he has sold more wine since, including a large auction through Acker Merrall in October 2007 – which was the date Koch served him with this lawsuit.  That sale sold over 11,000 bottles of wine, which realised about $15 million gross, about $12 million to Greenberg.  (Again, he’s being ripped off….  And although I can’t find it in myself to be sorry about this, the idea of John Kapon getting that money grates.)  There was a further auction in Hong Kong in May 2010 – referred to as the Imperial Cellar Auction.  This sold about 19,000 bottles, grossing $19 million, with about $15 million to Greenberg.  This particular sale was supposedly the largest sale of wine in Asia ever.  Greenberg had referred to it as “probably one of the greatest auctions that will ever be conducted in the history of the world”.

Hueston calculated that Greenberg had sold about 47,000 bottles of wine in the three auctions, realising between $35 million and $44 million.  He suggested that Greenberg was the largest individual seller of wine at auction in the history of wine auctions; Greenberg replied that he didn’t know the history, but that he was sure he was up there in the top at least three slots.

Hueston then produced an email from Greenberg to Jeff Zacharia regarding the proposed cover letter for inclusion in the catalogue for the October 2005 auction.  Greenberg agreed that the writing in all capital letters was his, and that these were his comments on the proposed document.  In the email, Greenberg begins by stating that he thinks it’s a good start, and that he has commented within the text below.  He adds that he wants to review the next draft as well (although adds that Jeff Zacharia never sent it to him).  Hueston stresses that Greenberg was not reluctantly giving input; he wanted to do so.  Greenberg claimed this was so he could be sure that no misrepresentations were made.

Hueston noted where Greenberg had highlighted that he did not want the document to say that this was only a portion of a cellar “that was four times the size – almost 100,000 bottles”.  Greenberg replied that he had been uncomfortable with this statement; it was never 100,000 bottles.  He emphasised that if people think you are selling in a “fire sale”, the bids are not sufficiently high, and he wanted to avoid any sense of a “going out of business” sale.

Hueston replied, “Everything you just tried to explain, none of that is in this email.  You simply say I don’t want to be shown as a heavy seller, right, sir?”  This set off one of the more bizarre interchanges I have read.  It started with Greenberg saying he’s read things Hueston has said on the internet about emails being incomplete or incorrect, and Hueston objecting.  (I’m not sure I’ve ever heard before an attorney objecting to his own witness!)  Greenberg continued, saying “You can mischaracterize this all you want, sir, but I’m not going to be bullied by you.”  Hueston replied that it was Greenberg’s testimony and he was free to give any testimony he liked to the jury, and Greenberg repeated “But I’m not going to be bullied by you or your client.  I’m not going to be bullied by you.”  Hueston reiterated that it was for the jury to decide if he was bullying or not; he was simply trying to ask questions, and would appreciate some answers.  Greenberg eventually confirmed that he had written that he did not think Zachys should show the eventual size of the cellar as it shows heavy selling, and that he knew the final version would be included in the catalogue for the October 2005 sale.

Hueston proposed that by October 2005 Greenberg had developed some ability to identify counterfeit wine.  Greenberg agreed, noting that his attention was centered primarily on corks.  He did look at capsules, but did not really know anything about them.  He would also look at labels and punts, although the latter rarely.  He had created a set of “fake wine summary notes” regarding the fakes Royal had sold him, and by late 2003 was also identifying fake and suspect wines to retailers like Wine Bid.  His procedure was to take the bottles he had bought directly from distributors on release, to compare them to what was offered by these retailers, and to type out the exact differences between bottles he got from release from the domaines and bottles he was sold at a later point.

Hueston referred back to the email with Steve Griffin, in which Greenberg has listed issues he had found with several bottles.  For example, on a magnum of 1999 Romanée-Conti, he compared the Wine Bid bottle with one he had bought from Wilson Daniels, and noted differences in the bottle and punt, and the label; similar differences were noted for a 1990 La Tâche magnum.  On a Dujac Echezeaux, Greenberg had noted that the dating on the cork is inconsistent with the rest of the cork.  Then, on a Jayer Brulées, there were inconsistencies with the import tax stamp and import label, the cork being in the wrong font, and the label was incorrect.  During this discussion, Greenberg had something of a disagreement with Hueston regarding the import stamp and strip label  – Hueston appearing to argue that it was clearly a vital piece of evidence, and Greenberg responding that it was simply an indication – both the cork and the main label provided much more conclusive evidence of counterfeiting.  (I tend to agree with Greenberg here, much as it pains me to say it.)  Greenberg confirmed he had not used an expert for these conclusions – these fakes were so bad they were “like fifth grade math, which I do help my young kid with”.

The second page of the exhibit was an embedded email to Greg Koslosky, who used to be a salesman at a vendor in southern California from which Greenberg bought wine.  He had bought a bottle that purported to be 1950s Rousseau Chambertin.  There were issues with the label, which appeared to have a date changed on it; with the bottle, which appeared new; with the capsule, which did not look to be of the right age, and the sedimentation did not appear to be correct.

Hueston commented that in 2002, 2003 and 2004 Greenberg had developed experience in authenticating wines and determining which wines were problematic.  Greenberg commented that he probably had “a middle school level version”, noting that having watched Michael Egan and Gil Lempert-Schwartz, he realised he knew less at the time than he thought he did.  Hueston noted that in the emails he didn’t say “I don’t know what I’m doing but here are the issues”, but rather “I think these are fake or likely fake and I’m having those returned.”

Hueston noted that Greenberg was the CEO of a wine company and was making demands on returns that were specifying specific issues with counterfeit bottles that he carefully itemised in emails.  Greenberg clarified that by California law he had to name a CEO – so as sole shareholder he named himself.  He denied being a wine expert with any training.  Hueston responded that they had already established that if he was not the biggest individual wine seller in the world, one of the biggest, but that he was asking the jury to believe that he really didn’t have any expertise despite being “able to cite indicia after indicia of what you claim were fake and suspect bottles.”  Greenberg responded that this was a mischaracterisation – he had a middle school level of expertise, where he could compare one thing to another.  After having seen the true experts, he has no comparison in his level.

Hueston asked if Greenberg had applied this “middle school level” to the wines he consigned to Zachys for the October 2005 auction.  Greenberg responded that he looked at corks – if it had a cork marking, he submitted it to Zachys, who were the experts, and whom he trusted.  This was his seventh auction, and if they thought it was fine, he believed them and thought it was real; there was no need to disclose problems in wines he didn’t think had any.  Hueston suggested that before Greenberg sold his bottles at auction, he had not disclosed to Zachys potential problems and issues he had identified.

Greenberg replied that in 2002, Jeff Zacharia and Fritz Hatton of Zachys visited his home (note that Zacharia and Hatton visited his home; Sutcliffe and Ritchie were only deemed to have been allowed into the cellar.)  At this time, he told them about the Royal wines, and that he had fakes in his cellar.  He added that in every auction he sold in, Zachys had rejected wines from him.  Greenberg stressed that he regarded Zachys as partners, and wanted to do the right thing.  He once again added that if anybody wanted a refund, he would be quite happy to give it.

Hueston averred that Greenberg had never told Jeff Zacharia, for the consignments going into the October 2005 auction, that there might be bottles from Royal included.  Greenberg replied, “He knew that for a fact”, to which Hueston retorted that they would hear from Mr Zacharia on that.

Court broke for a brief break.  (I feel as if I need one too…)

Click here for Part 5.