(NVR) - When Michael Ru Bello, the wealthy owner of a Southern California construction company, decided to become a Napa Valley vintner, he turned to some of the best known pros in the local wine industry to plant his vineyards, sell him grapes and make his wine.

Now vineyard manager David Abreu, winemaker Aaron Pott, and grape growers Jan Krupp and Gustavo Alvino are among some 81 people and businesses being sued by creditors from Bello’s bankrupt company, WallDesign Inc., in an attempt to “clawback” money that Bello paid them.

The “Official Committee of Unsecured Creditors of Walldesign, Inc.” is seeking payments from defendants that include MGM Grand Hotel in Las Vegas, Rolls Royce and Ferrari as well as local companies like NapaDesign and Ben Franklin Press. The amounts sought include nearly $1 million from Abreu for $662,000 he received in payments for work, plus the interest that has accrued since the lawsuits were filed in 2013.

“They are the victims in this case,” said Santa Rosa bankruptcy lawyer Michael Fallon, who contacted the Napa Valley Register at the request of Bello, who did not return a call himself, about the complex legal situation, which can be summarized as this: The defendants all accepted checks from Bello, without knowing that the money was coming from a allegedly “secret” account in a firm that was in deep financial trouble.

Lavish lifestyles, secret accounts

Fallon was the only attorney willing to talk on record, but a myriad of court documents chronicle the proceedings that began with the bankruptcy of WallDesign, Inc. in January 2012.

According to court documents, Bello was the sole owner of WallDesign, Inc., a company he founded in 1983. Its business was installing drywall, insulation, acoustical material and plaster in single and multi-family projects in California, Nevada and Arizona.

The court documents state that WallDesign earned millions, providing Bello and his family with the means to live “an extravagant lifestyle, including a mansion in Newport Beach, Calif. (which has since been sold), golf club and race horse track memberships, condominiums, luxury automobiles and the like” and to accumulate a large pool of investment and residential properties and form three other companies, including Bello Construction.

In 2000, Bello purchased vineyards in Rutherford near St. Supery winery and founded Bello Family Vineyards in 2004. He “set about constructing a French farmhouse with materials imported from France, incorporating details that had never been seen before in Napa Valley,” according to a Bello Family Vineyard website. He later hired Abreu to manage his estate vineyard and Pott as consulting winemaker.

In addition to becoming a Napa Valley vintner, the website states that Bello’s other dream was to own a champion racehorse, and in 2001 he purchased the thoroughbred Megahertz. In her career, she ran 34 races, winning 14, placing in six and showing in five. She earned $2.26 million, running her final race at age 6 in 2005. In November 2007, Bello sold a pregnant Megahertz for $2.1 million. The Bello Family Vineyards cabernet sauvignon is named Megahertz in her honor.  

The meltdown

“By 2007, WallDesign was already in financial difficulty,” the lawsuits state, adding, “the global economic meltdown that began in 2007 resulted in a major slowdown in the construction industry and Wall Design’s revenues and work in progress sharply declined.”

The company incurred a net loss of $11.5 million in 2007 and “by mid-2007 (and possibly earlier) Walldesign was undercapitalized, insolvent and unable to pay its debts as they became due in the ordinary course of business.”

At the end of fiscal year 2008, its gross revenues had dropped from $167.5 million to $108.2 million, according to the documents. “The downward trend continued through fiscal 2009 until January 2012. By that time annual revenues were down to $43.3 million, cash flow from operations was negative $2.5 million, work in progress was down to $11.3 million and net capital available to finance its business was negative $5.3 million.”

Walldesign filed for Chapter 11 bankruptcy protection in January 2012. Its assets were listed at $16.1 million, while its liabilities were $25.8 million, according to a court records.

According to that summary, more than half of the assets were the value of a 2009 Hawker 900 XP jet aircraft with a value of $8.5 million. Pasadena’s GE Capital has a claim of $11.1 million for that aircraft. Other creditors holding secured claims include Comerica Bank branches in Los Angeles and San Jose. The summary lists two creditors holding secured claims and 127 creditors holding unsecured claims.

These companies are all named the “Bello Controlled Entities” in court documents, which argue that despite Walldesign's financial troubles,  “Bello could not or would not scale back its or the Bello Controlled Entities business operations or expenses or his personal lavish lifestyle." This is where the secret bank account came into play.  

The secret bank account

It was after the Walldesign bankruptcy, the court documents allege, that “secret bank account,” was discovered.

It states, “In the halcyon days of Walldesign, Bello opened a ‘secret’ WallDesign corporate bank account at the Preferred bank."  This “Preferred Bank Account,” was established Nov. 1, 2002 and closed Jan. 24, 2012.  The "account remained active through the end of 2011 and open until after Walldesign filed bankruptcy,” the clawback suits state, charging that “Bello actively concealed the existence of that bank account from his subordinate officers and managers at Walldesign … Similarly, the flow of Walldesign’s money into and out of that account was also not disclosed in Walldesign’s records.”

The documents state that Bello did not disclose the account during the bankruptcy filing. “Instead, the existence of that secret account was learned about as the result of an investigation by one of Walldesign’s creditors ...

“From January 2007 through mid-December 2011, Bello diverted some $7.53 million of Walldesign funds into a secret corporate bank account at Preferred Bank, located in Irvine,” the complaint states, adding, “Predictably, the nearly $8 million that Bello diverted into the secret Preferred Bank Account was not used for the benefit of Walldesign. Instead, Bello used that money to support his opulent lifestyle and personal proclivities, including paying to operate Bello Family Vineyards; to operate Michael Bello LLC, his horse racing stable; to operate other Bello Controlled Entities; his Las Vegas casino bills at the MGM Grand and the Wynn; and his personal expenses charged on his American Express credit card.”

Tracing back the checks written on this account, written on WallDesign checks and signed by Bello, paved the way for the clawback lawsuits, filed in December 2013 by the law firm of Landau Gottfried & Berger in Los Angeles.  Jack A. Reitman and John Reitman, the attorneys representing the “Official Committee of Unsecured Ceditors of WallDesign, Inc., declined to talk to the Register.

According to bankruptcy law, the plaintiffs are able to “clawback” the funds from the secret Preferred Bank Account, paid for with Walldesign checks, because the services provided or products bought did not benefit Walldesign.

The court documents argue that Bello’s secret transfers from Walldesign to his solely-controlled Preferred Bank Account, were “made with the actual intent to hinder, delay or defraud the creditors of Walldesign (as well as Bello’s creditors) and specifically state and federal taxing authorities, i.e., the California Franchise Tax Board and the Internal Revenue Service,” according.

Bankruptcy attorney Michael Fallon, who said that, although he is not representing Bello, he is providing advice, said that one could argue that it was Bello’s company and “he had the right to spend his money anyway he wanted.”

“The mistake he made was writing checks from the account” to pay outside bills instead of writing checks to his personal account from the WallDesign account and then writing a check from the personal account to pay people such as Abreu and Pott, Fallon said.

“You should find out how much the attorneys are making off this case,” he advised.

In early 2014, Bello was questioned about the Preferred Account and he asserted his Fifth Amendment right against self-incrimination.

Ongoing

Jan Krupp, president of JRK Vineyard Management, said it is painful to discuss Bello and remembering the legal case is “not a pleasant memory.”

Bello was one of his customers, who bought both grapes from Stagecoach Vineyard and bulk wine from Krupp Brothers Vineyard. Krupp said Bello paid $46,380 for the bulk wine. According to the court documents, the plaintiffs sought repayment of that amount.

Krupp accepted two checks for the bulk wine, once in November 2007 and the second time in December 2010. Both checks were drawn on the bankrupt Walldesign Inc. account.

Krupp said he thought he had a good case to fight, but his attorney advised settling the case because it would cost more in legal fees to fight it than it was worth. Krupp and the plaintiff ended up settling for 55 percent, or $27,828 of what was sought. Additionally, Krupp paid his attorneys $11,000 in legal fees. Krupp’s case is one of the 30 that have been closed.

Krupp said the amount paid for the grapes themselves are not subject to the bankruptcy proceedings.

At one time, Krupp said he and Bello were looking becoming partners in buying the Black Stallion winery on Silverado Trail, just north of Napa. Krupp said the purchase was too big for Krupp Brothers. “Thank goodness” the partnership with Bello never happened, he said. 

Another defendant, Gustavo Avina, who has been vineyard manager for Pine Ridge Winery for the past nine years. When reached by phone, Avina said he couldn’t talk about his legal proceedings with Bello, because the case is still open.

On July 17, Judge Catherin A. Bauer of the Central District of California, Santa Ana Division of the U.S. Bankruptcy Court approved a motion for a summary judgment and ordered David Abreu to pay nearly $1 million back to creditors. Abreu did not return calls from the St. Helena Star or the Napa Valley Register, but his attorney, Anthony Napolitano, said he could not discuss the case because it “is not closed,” indicating that Abreu is appealing the decision.

Aaron Pott, a UC Davis graduate who worked at Newton and Quintessa wineries as well as wineries in Bordeaux, is now the owner of  Huis Clos Consulting, LLC. The lawsuit against him is seeking a a repayment of slightly more than more than $214,000 for work done from February 2008 through June 2011. The court documents list 30 payments during that time, made nearly every month, for $7,000 each.