Heritage Auction Galleries, the world’s third-largest auction house, is embroiled in a series of lawsuits involving one of its former consultants. On May 22, Gary Hendershott, a Little Rock, Arkansas, dealer in Civil War memorabilia and U.S. Western historical objects, sued Heritage and its six business partners in Dallas County’s 101st Judicial District Court under the federal RICO (Racketeer Influenced and Corrupt Organizations) Act and for violating several Texas state laws. He alleges that the Dallas-based firm used shill bidding to drive up prices "in surreptitious competition with other valid bidders."
It was the third suit involving the Arkansas dealer’s transactions with the auction house. The others concern Hendershott’s alleged failure to pay for two major Western paintings he acquired at Heritage in May 2007: Joseph Henry Sharps undated Jerry and Frederic Remingtons circa 1890 Mexican Buccaro — in Texas, which sold for $155,350 and $310,700, respectively. For his part, Hendershott claims he wasn’t paid commissions on more than $33 million in auction sales he generated for the firm.
On September 9, the RICO complaint was amended to include another purported victim, the Montana-based businessman Chris Kortlander, who engaged Heritage in 2007 to promote and sell thousands of historical documents and photographs relating to the massacre at Little Big Horn that once belonged to Lieutenant Colonel George A. Custers widow. Like Hendershott, Kortlander claims the auction gallery uses a fictitious bidder, N. P. Gresham, to boost prices at various sales.
Executives at Heritage deny the charges, terming them an elaborate ruse by the complainants to avoid paying their bills. "Basically, it’s the plaintiff’s lawyer trying to wage a PR war to force us to the table to settle with his client, who owes us well over a million dollars," says Greg Rohan, the firm’s president and a defendant in the RICO suit.
"This is not the first, second, third or even fourth time Mr. Hendershott or his attorneys have made sensational and untrue allegations about our business," Rohan adds. He further contends that Hendershott is legally bound to resolve his differences in arbitration.
Mark Senter, the attorney for Hendershott from the Dallas firm of John H. Carney & Associates, acknowledges that both parties have been instructed by at least two different Texas judges to go to binding arbitration but notes that "the RICO suit is not arbitratable because it doesn’t deal with any contracts . . . that have arbitration clauses and deals with, arguably, illegal activities."
Pivotal in this argument is the character who doesn’t actually exist. Rohan describes N. P. Gresham, whose initials he says stand for "new purchases," as a pseudonym for various experts on the private dealer side of the Heritage enterprise who place bids at the company’s auctions "at what they’d be willing to pay to buy items for stock to resell."
He adds that this was proved through documents and supported by court testimony and that this business accounts for approximately one-third of the house’s annual turnover. (In 2008 the company posted auction and private sales of more than $700 million.) He also points out that this proxy bidder has been in use for more than 20 years and that when successful, he "pays the same buyer’s premium like everybody else does."
In mid-September, the legal dispute escalated when Heritage countersued Hendershott, his family trust and Senter for sanctions, seeking a monetary penalty. The suit asserts that Hendershott et al know their claims are baseless and "have used this Court and the legal process as a medium to harass and defame Heritage in the public."
Heritage cochairman Jim Halperin mixed into the public debate by responding to a Dallas Observer blog covering the RICO case on September 21. "In almost 40 years in the auction business," he wrote, "we have never been accused of shill bidding in any other litigation or legal forum until Mr. Hendershott’s wild distortions." Attorney Senter begs to differ: "What Mr. Halperin is saying is not correct and it’s not supported by the facts or the documentation."
The case is in the discovery phase; no trial date has been set.
"Texas Wrangling originally appeared in the November 2009 issue of Art+Auction. For a complete list of articles from this issue available on ARTINFO, see Art+Auction's November 2009 Table of Contents.