Leake Auction Company has big plans for its first-ever auction in Scottsdale, AZ, in January 2020. But the welcome mat is not out. Immediately upon announcing its new auction, Leake got hit with a lawsuit filed by Russo and Steele alleging interference with contractual relations. Of course, Leake knew it was coming.

The cast

Drew Alcazar and his wife, Josephine, own and operate Russo and Steele. Russo prides itself on being family-owned and -operated — and on its signature “Auction in the Round” concept. Auction cars sit on ground level with 360-degree elevated platform seating around the stage. Bidders can leave their seats to examine the car on the block. The pit environment lends itself to an interactive, supercharged atmosphere. Alcazar being quite the showman is the icing on the cake. Until October 2018, Mark Landolfi was Russo’s Director of Operations. As such, he oversaw auction logistics and worked closely with Russo vendors and sponsors. Jim Leake Sr. founded Leake Auction Company in 1964. Based in Tulsa, OK, Leake bills itself as America’s first collector-car auction company. In 2018, Ritchie Bros. bought Leake. Ritchie Bros. is a global asset-management and disposition company — but is best known as an equipment auctioneer. Gary Bennett started his career at Leake. He eventually became vice president at Barrett-Jackson, where he managed the consignment, bidder, guest services, and insurance divisions. Bennett recently returned to Leake as its General Manager, New Ventures & Sectors (Collector Cars). Part of Bennett’s job is to expand Leake’s collector-car auction business.

The venue

In 2016, Russo moved its Scottsdale auction to Salt River Fields at Talking Stick. Salt River Fields is a sports and entertainment complex where the Arizona Diamondbacks and Colorado Rockies conduct spring training. Russo recognized its potential as a superior auction venue, and negotiated a long-term contract — subject to intermediate renewals — with its owner, the Salt River Pima-Maricopa Indian Community. Russo asserts that it invested considerable time, effort and “millions of dollars” in establishing it as a premier collector-car auction venue and in developing a strong business relationship with the owner.

The employee

According to Russo’s complaint, Landolfi had been in dire financial straits — including a judgment creditor’s garnishment. That, plus a number of other events, caused Russo to develop doubts about Landolfi’s competence, loyalty and fitness. According to Alcazar, the final straw was when Landolfi refused to sign a new employment agreement that included a covenant not to compete. That rang the alarm bells — had he already violated it? Or was he planning to violate it? As a result, Russo fired Landolfi last October. Within 48 to 72 hours after Landolfi’s firing, Russo received a very surprising notice from Salt River Fields — they had elected to not renew Russo’s contract, and the 2019 auction would be their last at Salt River Fields. According to Alcazar, this came “out of the blue, a complete bombshell. There was no warning — not even a hint — they would not renew.” As this news came immediately after Landolfi’s firing, Alcazar suspected it was not a coincidence. Alcazar said searches of Russo and Steele’s server, mail, files, phone logs and other sources revealed a startling situation — Landolfi had been sabotaging Russo’s relationship with Salt River Fields, which resulted in its refusal to renew the contract.

The interference

Alcazar said Landolfi was doing all that for the benefit of Leake, so Leake could take over the Salt River Fields venue. Russo claims that Bennett, Leake and Ritchie Bros. took advantage of Landolfi’s financial circumstances, and enticed Landolfi to poison the relationship between Salt River Fields and Russo and Steele. Russo claims that Leake wanted to lease Salt River Fields in time for Leake’s 2020 Scottsdale auction. Russo claims that Leake paid Landolfi for his help and would give him a job. Russo further alleges that Landolfi persuaded Salt River Fields to make the switch, gave Ritchie Bros. a copy of the Russo-Salt River Fields contract so they could match it, solicited Russo sponsors and vendors to move to Leake and helped Leake cement the deal. Those allegations aren’t very specific. Asked to elaborate, Alcazar declined to do so. “What I can say is, we have very compelling evidence that shows the interference was egregious and significant,” Alcazar said. “We have the smoking gun.” Alcazar’s reticence to be specific is well founded. When engaged in litigation of this sort, you are better off not being any more specific than you have to. You don’t want the other side to know what you know — or to know what you don’t know. Alcazar said Russo and Steele “did not make the decision to file the lawsuit lightly. We gave it a lot of consideration and thought, knowing that it will be a very expensive undertaking. But once Leake announced they would be holding their 2020 auction at Salt River Fields, we had no choice. We are committed to spending whatever it takes to see this through.”

No comment from Leake

Bennett was very apologetic about not being able to comment, based upon Leake’s attorneys’ instructions. The media representative for Leake and Ritchie Bros. also declined to comment, stating that they never comment on pending litigation. No surprises there. Keeping quiet is standard legal advice, and they are smart to take it.

The legal claim

So far, we only have one side of the story, and the other side may be quite different. But if what Russo and Steele claims is true, it looks like Leake screwed them out of their auction site. The legal term for that is Interference with Contractual Relations. The essence of that claim is that Russo had a contract with Salt River Fields, Leake wrongfully interfered with that relationship, and Salt River Fields canceled the Russo contract as a result of that interference. But not every interference with another’s contract is actionable. To create a legal claim, the interfering party must either use improper means or have an improper motive. Let’s say that Leake had searched for a Scottsdale auction site and decided they loved Salt River Fields. So they call the Salt River Fields manager and say, “Look, we just love your site. Whatever Russo is paying you, we’ll pay double.” If that conversation causes Salt River Fields to decline to renew the Russo lease and switch to Leake, there would be nothing Russo could do about it. Business is a competitive environment, and there is no “hands-off” normal. In this hypothetical example, Leake sure did interfere with Russo’s existing contract. But it did so by calling the Salt River Fields manager — no improper means about that — for the purpose of competing with and outbidding Russo — no improper motive either. That’s just good, hard competition. But Russo claims that Landolfi, as its Director of Operations, had legal duties of loyalty and confidentiality to Russo, which Leake caused him to breach. Russo claims that Leake used improper means — conspiring with Landolfi, bribing him, persuading him to breach his duties to Russo, stealing Russo’s information, destroying Russo’s existing good relationship with Salt River Fields with inaccurate information, and so on. None of that can be defended as proper conduct. If any of those claims are proven, it could lead to liability on the part of Leake, Bennett and Landolfi.

No stopping them

Interestingly, Russo is not asking the court to enjoin Leake from holding its 2020 auction at Salt River Fields. While that may be surprising, it makes legal sense. There is no way this lawsuit will be decided before the 2020 auction. To stop the Leake auction, Russo would have to ask for a temporary injunction while the litigation is still pending. To do that, Russo would have to demonstrate a high likelihood of winning at the ultimate trial. More important, Russo would have to post a bond in an amount sufficient to compensate Leake for its losses if it turns out that it did nothing improper. Leake’s losses from not being able to conduct a 2020 auction could be many millions of dollars. Instead, Russo is asking to recover damages that would compensate it for its lost investment in the Salt River Fields site and its attorney fees. It is also asking the court to order Leake to cough up to Russo any profits Leake realizes from the 2020 auction — essentially as ill-gotten gains.

The show goes on

So Russo is out at Salt River Fields. What does that mean for it in 2020? Alcazar is totally upbeat about Russo and Steele’s future. “After the problems we’ve had over the years with battles with our competitor and the windstorm that blew our tent down, this is a small bump in the road,” Steele said. “We already have two or three other options under consideration. “2020 is our 20th Anniversary auction, and we’re planning a very big deal. There is zero question about this — 2020 will be the best show we have ever put on!” There will undoubtedly be further developments. ♦ John Draneas is an attorney in Oregon. He can be reached through www.draneaslaw.com. His comments are general in nature and are not intended to substitute for consultation with an attorney.

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