Several years ago, “Legal Files” reported about the litigation surrounding 1954 Ferrari 375 Plus, s/n 0384AM (October 2010, p. 30). The 375 Plus, one of six made, was well-known in the hands of Jack Swaters, the Belgian former race driver and Ferrari importer.
Karl Kleve, an atomic scientist who worked on the Manhattan Project, claimed that the 375 was stolen from him. Both men have since died. Kleve’s position passed to his daughter, Kristine Kleve Lawson in 2003, and Swaters’ position passed to his daughter, Florence Swaters, in 2010.
Lawson sold part of her interest in the 375 Plus to Joe Ford, who has shouldered the bulk of the litigation burden. Ford, in turn, financed part of that effort through Christopher Gardner in exchange for a share of Ford’s ultimate recovery — the amount of which is in dispute between them.
A settlement or not?
It appeared that the intense dispute waged in Ohio state court had been settled in 2013. The parties and Bonhams entered into an agreement under British law titled a “Heads of Agreement.” An HOA is generally understood to be a non-binding agreement similar to a letter of intent in the United States, which sets out the expected terms of a deal. A binding agreement is expected to follow later. However, this particular HOA does not specifically state whether it is binding or not, and the parties disagree as to its meaning and effect.
Under the HOA, the parties appeared to agree to resolve their claims by consigning the Ferrari to Bonhams for sale at no reserve at the 2013 Goodwood Revival Auction. Bonhams agreed to bear all of the marketing, photography and transport costs associated with the auction, take only a 10% buyer’s premium and remit 50% of the hammer price to the Swaters interests and 50% of the hammer price to the Lawson interests.
Immediately after the HOA was signed, the parties returned to Ohio state court. After a trial court ruling enforcing the HOA, the appeals court reversed the ruling on the basis that the HOA’s terms required resolution of all disputes in London, so Ohio courts lacked jurisdiction to enforce it. Although the Ferrari and all parts and records held by Lawson had already been sent to Bonhams, the confusion delayed matters, and the Ferrari was not included in the Goodwood Revival auction.
Let’s try again
Bonhams later announced that the Ferrari would be sold at the 2014 Goodwood Festival of Speed auction. Lawson and Ford cried foul, asserting that the HOA specifically provided for the sale at the 2013 Revival auction. As that didn’t happen, the deal was off. They also expressed concern that the Goodwood Festival of Speed auction would be a much smaller affair, and the sales price might well suffer. Consequently, they formally withdrew any authority granted to Bonhams to sell the car, and their attorneys insisted that Bonhams not proceed.
Surprisingly, Bonhams proceeded with the auction. The Ferrari was hammered sold at $18,315,845, including buyer’s premium. This was reported to be the second-highest sales price ever at a British auction.
Ford has identified the winning bidder as a trust created by the CEO of a major U.S. corporation for the purpose of assembling a major car collection. The buyer’s attorneys have reportedly told Ford’s attorneys that the bidder has not paid the purchase price because Bonhams is unable to convey clear title to the Ferrari. They proposed to pay the purchase price on the condition that all parties assign their interests in the Ferrari to the buyer, with all of the funds held in escrow until the parties are able to sort out who is entitled to how much. Ford said that their proposal was acceptable to everyone except Florence Swaters.
More legal gears grind
As of this writing, Bonhams has just filed an action in London claiming that it has been paid the full sales price for the car, although it does not state from whom. Bonhams has asked for leave to pay the net sales proceeds to the court, to be divided among the warring parties as they are determined to be entitled.
But Bonhams threw a major monkey wrench into the works. It claims that:
1. Less than 72 hours before the auction, unspecified allegations were made by a Mr. Zanotti that impugned the Ferrari’s title and authenticity.
2. Less than 24 hours before the auction, Zanotti filed suit in London.
Finally, based upon direction from Swaters and Gardner “as vendors of the car,” Bonhams settled the claim by agreeing to pay Zanotti £2 million ($3.4 million). Bonhams seeks to deduct that amount from the proceeds to be paid into court.
As we go to press, this is where this intriguing battle stands.
The answers will come in due time, but let’s consider what the questions are likely to be:
1. Who bought the Ferrari? Bonhams claims that it has been paid the full purchase price. The apparent high bidder claims he hasn’t paid anything, and the amount reported received by Bonhams matches the high bid. Does Bonhams have the money, and from whom did they get it? If they don’t have the money, this is going to go nowhere fast.
2. Did Bonhams have the legal authority to sell the Ferrari? The HOA seems quite clear that Bonhams was appointed as the agent of the various parties to sell the Ferrari at the 2013 Goodwood Revival auction, which did not occur. It would seem that any authority that Bonhams had to sell the car lapsed at that point. Did Bonhams get authorization from another source? If so, from whom, and did they have the power to grant that authority? It seems unlikely that the clear reference to the 2013 Revival auction was not controlling, and Bonhams could just enter the Ferrari at any upcoming auction. However, Bonhams has been in the auction business since 1793, they’ve seen most everything, and it would be amazing if they proceeded without clear authority.
3. Will the Zanotti settlement be upheld? Lawson and Ford have no idea what claims were made by Zanotti or who he is. They also insist that they signed nothing that would have given Swaters and Gardner the authority to authorize Bonhams to make any sort of settlement with Zanotti. Ford states that the filings in the Ohio litigation have been clear that Gardner’s involvement has been limited to having a lien on Ford’s sales proceeds. Lien status would mean he remains a creditor and is not a principal. If he is not a principal, it would seem doubtful that he would have any authority to direct Bonhams in any manner unless the parties signed other documents that gave him that authorization.
Ford states that neither he nor Lawson were named in the Zanotti lawsuit, and Bonhams has not suggested that anyone other than Bonhams was named. If that is correct, it would seem doubtful that Zanotti could have prevented the sale at the auction.
If the Zanotti settlement was not properly authorized, the outcome could be that the funds paid to him would be charged against Swaters and Gardner. That would protect Lawson and Ford — so long as the Swaters and Gardner interests are sufficient to cover the payments to Zanotti.
4. What will happen with the 375 Plus? If Bonhams had the authority to sell the Ferrari, and if the buyer sticks with the purchase, it would seem that the buyer would get the Ferrari, and everyone else will be fighting over the sales proceeds. If the sale fails, the car will return to limbo and the parties will continue with litigation that seems to have no end. The sale of the Ferrari will have to wait until the litigation is resolved, which could take many more years.
A suggested solution
It’s easy for “Legal Files” to point to obvious solutions when it isn’t directly involved in the battle. Nonetheless, objectivity often creates clarity of thought.
Ford describes the sale result as “weak” because the Ferrari was sold at the wrong auction. On the other hand, the Ferrari may have been sold at the right time.
When this story first appeared in “Legal Files” in 2010, the closest comparable was a $5 million sale. The parties are now some $13 million above that. If the 375 Plus is re-auctioned late this year, next year, or the year after, is it likely to bring more?
The answer depends on whether your crystal ball says we are at the top or the middle of the collector car market. It appears to “Legal Files” that the parties are not seasoned car collectors who are in this for the long haul. This is likely their one and only big-ticket collector car. It would appear that they would be ill-advised to take the market risk, and they should find a way to keep this sale in place and argue about the money later.
The Zanotti deal may be something that needs to be litigated, but it is a $3.4 million known quantity. The Gardner deal is also a claim that may have to be litigated, but it would seem to involve only Ford and Gardner, making it a smaller battle.
Time will tell. ♦
John Draneas is an attorney in Oregon. His comments are general in nature and are not intended to substitute for consultation with an attorney. He can be reached through www.draneaslaw.com.