Napa's Stone Brewing, landlord dispute rent payments during coronavirus pandemic

Like many Napa businesses, COVID-19 battered Napa's Stone Brewing Co.

The brewpub and restaurant in the historic Borreo Building lost half of its sales during the pandemic, causing "severe (and) unprecedented economic strain."

"COVID-19 wrecked Stone's operations," said legal documents from Stone Brewing Co.

By April 2020, sales had plummeted 60% and the Napa Stone Brewing operation had to lay off 27 staff members.

Yet when they asked, Stone Brewing’s filing said, Napa landlord West Pueblo Partners refused to work with them on a rent deferral.

West Pueblo Partners sees it differently.

The partners said Stone is refusing to pay rent even as it continues to operate its restaurant and brewery.

Stone hasn't paid its estimated $40,000 monthly rent since November 2020, "despite Napa County now having far fewer COVID-related restrictions," said court documents.

As a result, West Pueblo Partners started the process to evict its tenant. According to the group, Stone owes West Pueblo Partners $211,273 in back rent.

On March 30, Stone Brewing Company made its own legal move. The company filed a lawsuit in Napa Superior Court alleging breach of contract and other causes.

According to J. Noah Hagey, an attorney for Stone Brewing, the Napa Stone lease includes a provision that protects the tenant from events outside their control such as the COVID-19 pandemic.

West Pueblo Partners disagreed.

"Stone's excuse is that COVID somehow impedes its ability to pay rent," said Kevin Teague, a West Pueblo Partners member.

"The makers of the appropriately-named Arrogant Bastard beer have simply decided to stop paying rent on the Napa building."

At the same time, "The company continues to make beer, distribute beer, sell beer, sell other brewery swag, sell food, fully operate the patio and is permitted to operate the upstairs dining area to the maximum allowed," said Teague.

West Pueblo Partners, which consists of Kevin Teague, Michael L. Holcomb, Michael C. Holcomb and John Nichols, owns the Borreo Building, located at Third Street and Soscol Avenue.

The property owners said they need that money to pay their mortgage on the historic Borreo building. "West Pueblo Partners generates revenue only from the Borreo Building," it noted.

"Stone decided to stop paying rent with no notice to West Pueblo Partners," West Pueblo Partners said in response to the complaint.

According to court documents, Stone's 2020 sales at the Borreo Building were $2.022 million. In 2019 Stone's 2019 sales totaled $2.696 million.

"Stone is a large corporation with hundreds of millions of dollars in annual revenue from multiple sources," said West Pueblo Partners. According to its website, Stone Brewing has locations in Richmond, Virginia; Oceanside; Pasadena and San Diego.

"We dispute West Pueblo Partners' mischaracterizations of the brewery's performance during the pandemic," said Hagey.

"Stone has struggled to operate and maintain the brewery during the pandemic and any suggestion that the shutdown of on-premise operations wouldn't affect its Borreo operations are ludicrous," said Hagey.

Stone explained why it stopped paying. In December 2020, a second round of stringent restrictions prohibited on-premise dining, "forcing Stone to invoke its rights under the lease and defer payment," said court documents.

"Despite repeated requests," West Pueblo Partners did not provide a discount or decrease "and offered only temporary, short-term deferments."

On March 23, West Pueblo Partners served a "pay or quit" notice and moved to evict their tenant from the Borreo Building. California's emergency COVID-19 eviction law only applies to homes and apartments and not to commercial buildings, said Teague.

In addition, Stone claims that West Pueblo Partners also improperly applied Stone Brewing's security deposit towards unpaid rent, said Stone Brewing documents.

The business has a 20-year lease with West Pueblo Partners.

Teague said the lease had a provision that said if the tenant stopped paying rent, West Pueblo Partners could apply their deposit towards the unpaid rent.

Stone disagrees. West Pueblo Partners does not have the right to use its security deposit towards rent, Hagey said.

Stone's CEO, Maria Stipp, weighed in. "We worked hard to avoid litigation," she said.

"Unfortunately, our repeated attempts to find a reasonable solution in Napa were rebuffed," said Stipp.

"That's complete rubbish," said Teague. In fact, Teague said that Stone rejected at least two proposals from West Pueblo Partners.

Stone Brewing opened in Napa in May 2018.

In a September 2020 story from GoodBeerHunting.com, the Escondido, California-headquartered company was described as the ninth-largest craft brewery in the country.

According to Teague, "the pandemic seems to have benefited Stone's core business, which is making and selling beer. Beer sales even increased nationwide during the pandemic."

"Stone is a billion-dollar company that clearly has the ability and the money to pay its Napa rent and COVID did not prevent them from paying rent," said Teague.

"Instead, Stone seems to believe that they can overwhelm us and the Napa courts with claims that lack merit, excuses and delay as a plan to boost the company's profits during this crisis," said Teague.

After being a widely imitated tastemaker in the 1990s and 2000s, Stone has struggled with its place in the industry in the last decade as consumer tastes moved away from the strong, bitter, highly hoppy ales that it specializes in.

Prior to expanding to Napa, Stone made a splashy entry into the European market, opening a brewery and pub in Berlin. But that venture faltered after less than three years and the company sold the facility to a Scottish brewer. It also closed a taproom in Shanghai and conducted a round of layoffs that cost 300 jobs companywide.

It's most recent marketing campaign, which featured labels on bottles printed upside down with little explanation, caused widespread puzzlement in the beer industry.

More recently, Stone has been involved in a number of high-profile lawsuits, including a trademark battle with behemoth Molson Coors over packaging of its "Keystone Light" brand. At the same time, it tangled with much smaller companies, including Kentucky-based Sawstone Brewing and Utah-based Holystone Distilling.

You can reach reporter Jennifer Huffman at 256-2218 or jhuffman@napanews.com.