When most people get a bad bottle of wine, they send it back. When billionaire collector William Koch concluded the vintage wines he bought at auction were counterfeit, he made a federal case out of it.
Koch purchased what he thought were French wines from the Bordeaux and Burgundy regions, some dating to Napoleonic times and the Belle Epoque, he alleged in a 2007 complaint filed in federal court in New York. He claimed that Eric Greenberg, the founder and chairman emeritus of Scient Corp., who’d consigned the wines, defrauded him.
Koch initially said 36 bottles that he bought at New York- based Zachys Wine and Liquor Inc. in 2004 and 2005 for about $500,000 were counterfeit. Last week, he pared back his claims to 24 bottles for which he spent about $350,000.
While the founder of Oxbow Carbon & Minerals has filed other lawsuits over alleged counterfeit wine sales, the case against Greenberg is the first to go to trial, with opening arguments scheduled for today in Manhattan before a jury of six men and two women.
U.S. District Judge Paul Oetken said yesterday he would allow Greenberg to present evidence that he offered to reimburse Koch for the full cost of the suspect bottles. Koch’s lawyer, John Hueston, then proposed that evidence about the refund be presented during a second phase of the trial when the jury would decide whether to impose punitive damages.
Punitive Damages
Hueston told Oetken that if the judge rejected the idea, his client was also willing to drop the punitive damages claim.
“If punitive damages are out, doesn’t that make the case moot?” Oetken said. He said he understood the premise of Koch’s lawsuit was to seek punitive damages to address that “something egregious happened here.”
“So I’m a little surprised by the offer to drop the punitive damages claim because that, I thought, is what this case is about,” Oetken said. “I’m not going to say it’s a waste of time, but I thought the point was this conduct was so bad it should be punished.”
The judge then asked: “Are you saying Mr. Koch is simply seeking an apology?”
Hueston said his client is seeking to protect the integrity of the fine-wine market. Hueston alleged that Greenberg wanted the suspect bottles to be returned to him in order to put them back on the market and to “send the bottles back to the next victim.”
‘Six Figures’
Arthur Shartsis, a lawyer for Greenberg, told the judge that when his client first learned that Koch suspected the wines he purchased were fakes, he repeatedly offered to reimburse the collector for what he called the “very, very low six figures.”
Shartsis said Koch has rejected Greenberg’s offer to have a public tasting of the fake wines to raise money for charity.
“This case is an embarrassment to all of us,” Shartsis said, adding that the lawsuit has dragged on for more than five years.
“We’ve spent cumulatively about $14 million on a claim that is probably between $100,000 to $200,000,” Shartsis said. “The legal system shouldn’t be doing this — at all. Particularly when one of the parties years ago, could’ve avoided the costs for both by accepting a full tender.”
Oetken said he will rule later on whether to have a second phase of the trial to determine whether one side should pay the other’s legal fees and other costs.
At the end of yesterday’s proceedings, Oetken directed the two sides to try to negotiate a resolution and he separately summoned them into his robing room for a round of conferences.
Greenberg declined to comment on the status of the discussions when he emerged from one session.
“I had Zachys inspect the bottles and I offered a refund,” he said. “I don’t know what else I could do. I did the right thing.”
Two Auctions
Koch alleged that Greenberg consigned the counterfeit wine during two auctions held by Zachys Wine Auctions in December 2004 and October 2005.
Included among the wines Koch alleged were counterfeit were two bottles of Chateau Lafite Rothschild — one from 1805 costing $22,500 and one from 1811 bought for $29,170. Koch said he also bought three magnums of Chateau Lafleur, vintage 1945, for $57,000 that he contends were fakes. Shartsis said after court that Koch has dropped claims that the 19th century wines he purchased were counterfeit.
Koch said in his complaint that Greenberg concealed information from him and other collectors, including Greenberg’s “serious doubts” about the authenticity of the wines he put up for auction and that some had been acquired from suspicious sources.
‘Misleading Representations’
The suit includes claims of fraud, fraudulent concealment and violation of New York business law for what Koch said were “materially misleading representations” Greenberg made about the wines’ authenticity and provenance.
Brad Goldstein, a spokesman for Koch, declined to comment on the case.
Greenberg has argued that Zachys inspected the wine before the sale and an auction catalog included an “as-is” clause, a disclaimer about authenticity, and a notice that any potential buyer could inspect the bottles before bidding.
Zachys, which was named as a defendant in Koch’s complaint, settled with him in January 2011 on undisclosed terms.
A separate case that Koch brought against Christie’s International Plc over claims that auction house had “induced” him into buying counterfeit wine was dismissed in 2011.
U.S. District Judge Barbara Jones said Koch knew the bottles were counterfeit and that he bought the wine not because of the alleged fraud but out of a “desire to gather evidence against Christie’s.” An appeals court last year refused to reinstate Koch’s claims.
Kochs previous claims have included that he was sold counterfeit wine, marked “Th.J.,” that had purportedly belonged to Thomas Jefferson.
The case is Koch v. Greenberg, 07-cv-9600, U.S. District Court, Southern District of New York (Manhattan).
