A public announcement from John Draneas, Legal Analyst SPORTS CAR MARKET:
kruse International has been engaged in litigation with its mortgage lender on its Kruse Auction Park property. The lender had sought to have a receiver appointed to take control of the property, a result which may have interfered with this weekend's Fall Auburn auction. That was avoided with an agreement recently filed with the court. The agreement provides for the following, in lieu of the appointment of a receiver:
* Within 5 days after the auction, Kruse will provide a preliminary accounting of the auction revenues and expenses, and a full accounting within 30 days.
* No funds from the auction will be paid to any of the Kruse entities until after $500,000 has been paid to the mortgage lender and $1,000,000 has been paid to 13 specifically identified creditors.
* Failure to comply with the agreement can lead to penalties for perjury and contempt, and a tripling of damages.
We have been following the numerous press reports about Kruse's financial problems, its failure to pay sellers from previous auctions, and the regulatory actions implemented. The most complete was written by Angela Mapes Turner, reporting for the Fort Wayne, Indiana, Journal Gazette. You can read her article at:
When we contacted her to talk about her article, Turner stated that Dean Kruse had been "very candid and forthcoming" about the situation, and that he had assured her he was "doing everything he could to solve all the problems."
My review of the agreement referenced in the first paragraph above raised questions about how this weekend's consignors fit into the plan. Rather than guess, I contacted John Price, Kruse's Indianapolis attorney, for clarification.
Price advised that the agreement governs the disposition of Kruse's net proceeds from the auction only. The sales proceeds that become payable to this weekend's consignors are included as "auction expenses" and are unaffected by the agreement, and Kruse will pay this weekend's sellers in full before any pre-existing creditors are paid anything.
In addition, Kruse has taken steps to prevent the past from repeating itself. This weekend, bidders will be required to post the traditional forms of payment (letter of credit, bank letter of guarantee, approved credit card, or cash) before being allowed to bid. Price believes these procedures and assurances should be enough to comfort consignors that their cars will be sold at the best possible price, and that they will receive their full sales proceeds promptly.
Traditionally, the Fall Auburn auction has been the biggest event of the year for Kruse, with auction sale revenues surpassing $17.6 million last year, and producing additional revenue from general admission, food, and other sources. If this weekend's auction produces as it has in the past, it could well be the solution to Kruse's financial problems.
My comment: I really hate to see this happen. I have spent many Labor Day weekends at this auction. Met a lot of great people and had a great time in general.