Last month, "Legal Files" analyzed the six shots fired by Barrett-Jackson in its lawsuit against Judge David Clabuesch, the unhappy seller of the Ramchargers Hemi 'Cuda that brought $300,000 at the Scottsdale auction in January. Judge Clabuesch has responded by emptying his own legal pistol, filing a five-count counterclaim against Barrett-Jackson and an accompanying Third Party Complaint against Thomas Kazamek, the purchaser of the Hemi 'Cuda. "Legal Files" will analyze the response in the same manner as the initial filing. We are not taking sides in this matter. We are simply examining the documents that are a matter of public record and offering our opinions. (To read the complete original complaint and the response, go to www.sportscarmarket.com/legalfiles.)
Quick answer to the complaint
When sued, a defendant has two basic legal methods with which to defend against the charges. One is to file motions against the Complaint, the other is to file an Answer. As discussed last month, there appear to be a number of instances where some uncertainty surrounds the charges made in Barrett-Jackson's Complaint, and "Legal Files" suggested that various motions might be filed in response.
For example, several of the allegations seemed vague or uncertain, or raised issues about whether they were properly stated legal claims. Motions would have demanded a "do over," specifying where the vagaries lay and demanding that Barrett-Jackson revise its Complaint to resolve any shortcomings.
Instead, Judge Clabuesch filed an Answer, generally denying all of the claims without bothering to try to force greater precision, along with his own Counterclaims. This is not a cautious approach, as Clabuesch cannot later go back and complain about any shortcomings.
Why did he respond in this way? Obviously, this is pure speculation on my part, but the possibilities include: viewing the allegations as "close enough" and thinking that legal wrangling here would not generate much real benefit; containing litigation expenses; perceiving a need to hurry and get the Counterclaims and Third Party Complaint filed; desiring to get his side of the story before the court of public opinion; and wanting to demonstrate confidence in his own position.
Answers are always boring
As much as the Barrett-Jackson Complaint made interesting reading, Clabuesch's Answer is predictably dull. That's certainly not his fault; it's just that legal procedures require the Answer respond to each and every allegation in the Complaint in order, and either admit or deny them one by one. But the Answer does raise a few interesting points:
- The suit was filed by two separate Barrett-Jackson companies, but Clabuesch only contracted with one. Perhaps future events will make this distinction important.
- Judge Clabuesch asserts that the Consignment Agreement imposed an obligation on Barrett-Jackson to achieve the highest possible sales price for the Hemi 'Cuda, which he does not believe occurred.
- Although Barrett-Jackson attached Clabuesch's entire multi-page Grievance Report to its Complaint, Judge Clabuesch responds that he taped it to the inside of the Hemi 'Cuda window and only the first page was visible to persons outside the car, suggesting that Barrett-Jackson created part of its own problem.
- It points out that the Grievance Report was also signed by one of the unsuccessful bidders on the car, who joined in the protest of the sale.
- It alleges that Barrett-Jackson left the car outdoors after the auction, and Clabuesch pushed it into the Showcase Pavilion tent to protect it.
Lots of defenses
Once the Answer has responded to all of the allegations made in the Complaint, the next procedural step is to list all of the defenses that can be claimed against the charges. The Answer asserts several defenses of interest:
- Barrett-Jackson's damages were caused or contributed to by third parties. "Legal Files" interprets this as meaning that Judge Clabuesch had nothing to do with the offensive Internet blog, the numerous repetitions on the Internet, and the claimed decisions of Palm Beach consignors to cancel out of that auction.
- Barrett-Jackson failed to mitigate (take steps to reduce) its damages, but makes no suggestion about how it could have.
- Barrett-Jackson contributed to its own damages, presumably by publicizing both the full Grievance Report and its belief that the Palm Beach auction was losing seller consignments.
- Everything Clabuesch said was true, which would defeat the defamation claims, or else it was privileged, probably meaning that Clabuesch was entitled to protect his own legal interests.
- Barrett-Jackson is a public figure, which would restrict its ability to make defamation claims.
Five counterclaims filed
Counterclaims are essentially firing back at the plaintiff. Denials and defenses mean that the defendant does not owe anything to the plaintiff, but that doesn't put any money in the defendant's pocket. Counterclaims are essentially the defendant suing the plaintiff, claiming that the plaintiff owes money to the defendant. Judge Clabuesch filed five Counterclaims against Barrett-Jackson, so now they really are suing each other. Let's look at them, one by one:
1. Breach of Contract
This count alleges that Barrett-Jackson breached the Consignment Agreement because it did not conduct a proper and reasonable auction of the Hemi 'Cuda, it failed to accept higher bids, and it failed to handle properly the protest of the auction.
While the Consignment Agreement does not specifically require Barrett-Jackson to do either of the first two, it appears likely that both will be implied into the contract, making this a valid legal claim. It should be expected that Barrett-Jackson will deny the first allegation, and insist it did conduct a fair and proper auction, and that all its actions were within the reasonable range of its discretion. It should be expected that Barrett-Jackson will deny that it knowingly failed to accept higher bids-after all, one can't expect an auction company to accept a bid it is unaware of. Consequently, the outcome on both of these charges will depend on what the evidence turns out to be.
The failure to properly handle the protest does not seem to be a proper breach of contract claim. The protest lodged by Clabuesch seems more along the lines of a remedy for the earlier perceived breach (auction errors), and would not seem to be part of the contract.
2. Breach of Good Faith and Fair Dealing
Sound familiar? Yes, this is the same claim Barrett-Jackson asserted against Judge Clabuesch. Unfortunately, this count does not specify just what Barrett-Jackson did to breach these implied contractual duties, and I would expect Barrett-Jackson to file motions to require him to supply that added detail. I would expect that Barrett-Jackson will claim it had considerable discretion about how to schedule and handle the auction of this car-when it came onto the block, how long it stayed on the block, how hard the auctioneers tried to pull bids, and when and how to drop the hammer-and that Barrett-Jackson fairly exercised its discretion in these matters.
3. Breach of Fiduciary Duty
A fiduciary duty is one of the highest standards of care and loyalty that the law imposes on a party. All dealings between the parties are closely scrutinized for fairness and absolute honesty. However, to create fiduciary duties, there must first be a fiduciary relationship between the parties.
The problem with this claim is that it does not specify any relationship that would give rise to such duties. It appears to be founded on the allegation that Barrett-Jackson held the Hemi 'Cuda "in trust." If true, that would clearly be a fiduciary relationship. But holding another person's property does not automatically create a trust relationship. More likely, the relationship was a bailment, which is what you typically have when you leave your car at a repair shop.
The auction company's power of sale makes it look more like a trust arrangement, but I don't think that will be enough. In particular, the claim has little to do with the safeguarding of the car or its title. Rather, the claim is primarily based upon the manner in which Barrett-Jackson conducted the auction. It seems unlikely that a court would apply trust concepts to that type of relationship.
Conversion is essentially the civil version of the crime of theft. This claim is based upon the auction company's conduct after the auction was protested. Clabuesch asserts that, once the protest was lodged, Barrett-Jackson was required to do nothing further until the protest was satisfactorily resolved, and by releasing the car to the purchaser a conversion occurred.
I just don't think this claim will find any traction. I don't think that Clabuesch's protest carries the weight he asserts. Of course, the protest put Barrett-Jackson on notice that its conduct was being challenged, but a party to a contract is ordinarily entitled to believe that it has acted properly, and proceed with its performance even when the other party claims a breach has occurred.
Further, this is much the reverse of the Barrett-Jackson claims against Clabuesch. In its complaint, Barrett-Jackson asserts that Clabuesch's conduct was unlawful, yet Clabuesch properly responds that he was simply trying to assert his legal rights. I would expect both sides to get the benefit of any doubts on these claims.
This claim asserts that Barrett-Jackson was negligent in the manner in which it conducted the auction. Whether this is separately actionable depends upon Arizona law. Some states' laws preclude negligence claims in breach of contract situations, reasoning that virtually any unintentional breach of a contract would create a claim for negligence. I can't say how Arizona law provides, but this would be the issue to watch here.
Give me back my car
The most interesting claim here is the Third Party Complaint against Kazamek, the purchaser of the Hemi 'Cuda. Clabuesch has sued him, demanding that the sale be cancelled and unwound.
Kazamek can be expected to defend on the basis that he knew nothing about the problems with the auction, he bought the car fair and square, and that Judge Clabuesch's recourse should be limited to recovering damages from Barrett-Jackson. That's a pretty strong position for Kazamek to take, and I would expect him to stick to it like a dog on a bone.
The Third Party Complaint seems to assert that the post-auction protest changed the landscape, and made Kazamek aware there were problems with the sale. However, I would think that Clabuesch misses the mark here.
It seems to me there would be only two scenarios whereby Kazamek could be forced to give the car back. One would be if Kazamek and Barrett-Jackson were in cahoots in some way, which has not been alleged or even hinted at. The other would be to prove that Kazamek was aware of the irregularities in the auction when the hammer fell. That has not been alleged either. Absent one of these situations, I would think that Kazamek could successfully keep the Hemi 'Cuda.
We know that Kazamek bought the Hemi 'Cuda at the auction, but does he still own it? What if he has already sold it to another collector? Could that collector be forced to give it back?
Generally, the answer would be no, at least as long as the new buyer can show that he knew nothing about the pending lawsuit. That makes it interesting that Judge Clabuesch has not done anything to tie up the car. If he is really serious about getting it back, one would expect that he would ask the court to enter an injunction preventing Kazamek from selling the car while the lawsuit is pending.
"Legal Files" has often pointed out that state law does not usually require that the loser pay the winner's attorney fees unless the contract so provides, and recommends that you be sure your contract allows you to recover them from the other party. Oddly enough, the Barrett-Jackson Consignment Agreement does not contain an attorney fees provision. That could be an oversight, or it could be a conscious strategic decision to make it as expensive as possible for a consignor to assert claims against Barrett-Jackson; we just don't know the logic behind it.
Nonetheless, Arizona law has a very interesting provision regarding attorney fees. It gives the court the discretion, but not the obligation, to award attorney fees to the winner in a breach of contract lawsuit. However, the law is specific that this is intended to be done only in appropriate circumstances, and does not necessarily require that all of a party's attorney fees be reimbursed, only whatever seems appropriate under the circumstances. This is as clear as mud, but I would expect that pretty bad conduct would have to be shown in order to trigger this provision.
The most likely next step will be for Barrett-Jackson and Kazamek to respond to the claims brought against them, and for the case to then enter into a long and painstaking discovery process. That is, each party will seek to obtain documents and records from the other, and key people will be forced to testify under oath in depositions about what they know. The discovery process will not be public, and we may not learn anything more until it has been completed.
There is always the chance for a surprise, and many more facts are likely to be discovered. But based on what has been filed, my prediction is that Barrett-Jackson will end up as more of a defendant than a plaintiff, and I am not very impressed with their claims against Judge Clabuesch. I also predict that Judge Clabuesch's claims will boil down to a breach of contract claim for improprieties in the conduct of the auction. The most interesting part of this lawsuit, from the perspective of SCM readers, is that it will explore the limits of how far an auction company is required to go to get the best possible deal for a seller.
And keep in mind, the potential always exists for a settlement. After all, we're really only talking about money here, and fighting over it costs even more. The parties may find that it's cheaper to split the baby than to fight, although it usually takes time and expense for them to figure that out.