AUBURN – When the crowds press into Auburn this week for the Kruse International Labor Day auction – one of Indiana’s largest annual events – they’ll arrive in the midst of a crisis for auction magnate Dean V. Kruse and his company.

Foreclosure lawsuits. Suspended business licenses in another state. Millions in debts from unpaid corporate credit card bills and personal and business loans. The lowest possible Better Business Bureau rating.

Kruse acknowledges the problems but downplays their importance. He insists his business is not on the verge of bankruptcy but acknowledges he didn’t see the recession coming soon enough.

The six-day Labor Day auction, he hopes, will solve many of the problems that have plagued Kruse International for the past year. A court agreement filed last week orders the garnishment of auction proceeds to pay outstanding bills, including the auction park’s mortgage.

“I just need to generate some cash, and I feel very comfortable,” he said in a recent interview. “I like challenges, and I’m a survivor.”

Kruse, who will be 68 next month, holds about 30 auto auctions and dozens of real estate auctions nationwide each year. The Auburn event is billed as the world’s largest of its kind, and Kruse International historically has auctioned about 5,000 vehicles during the Labor Day weekend event.

As of Thursday, 1,500 vehicles had been consigned for the upcoming auction, according to Kruse’s Web site.

The auction, held the same weekend as the Auburn Cord Duesenberg Festival, attracts thousands of spectators who attend related events in Auburn. The city can grow to more than 10 times its population of 13,000 in what has become a citywide, weeklong party.

The Kruse family was instrumental in the 1970s in building Auburn’s now world-renowned events, holding its first auction in the city in 1971.

Over time, Dean Kruse says, his company has established decades-long relationships with some customers.

Kruse’s company often would release cars and the customers would pay in a week or two by bank wire or check. Those customers combined might owe the company a couple hundred thousand dollars, Kruse said.

But the recession has meant more buyers – even longtime ones – haven’t paid on time. Now Kruse says he is owed $6.5 million in accounts receivable, some from people who have been customers for 20 years.

Kruse tried to require immediate payment several months ago, but many customers resisted. So the practice of buy now, pay later continued until about a month ago.

“We really clamped down hard,” he said. “We don’t release any cars now until the money clears our bank.”

Licenses suspended

Kruse International’s financial struggles became more apparent after January and February auctions in Arizona.

Several sellers who spoke to The Journal Gazette said it took months for them to be paid, even though their contracts stated they were to be paid in 30 days.

After complaints this spring, the Arizona Department of Transportation’s Motor Vehicle Division began an investigation. That agency’s inspector general found that Kruse had failed to maintain an active dealer location with hours of business in both Phoenix and Tucson, as required under Arizona law.

The inspector general issued two cease-and-desist orders to the company in July, suspending Kruse’s licenses to sell cars in Arizona. Kruse can get his licenses back but will have to reapply, and there would be a substantial review connected with approval, said Cydney DeModica, spokeswoman for the Motor Vehicle Division.

Kruse, who has held auctions in Arizona for more than 30 years, said he is working to get his licenses reinstated.

But financial problems closer to home might prove a distraction. Kruse and his companies face assorted legal actions in DeKalb County courts seeking more than $16 million.

In May, FCOF Midwest Credit LLC filed in DeKalb Superior Court to foreclose its mortgage on Kruse Auction Park, where the annual Labor Day sale attracts an estimated 150,000 visitors. The filing claims the loan is in default for $7.8 million.

In an agreement on that case filed last week, Kruse International agreed to provide FCOF’s attorneys a full accounting of the auction within five days of its conclusion Sept. 8. Within 30 days, an independent certified public accountant must be hired by Kruse to report all income, revenue and expenses of the auction to the bank.

The agreement also says Kruse, his company or any related person or entity is not to receive money from the auction. Instead, with the exception of reasonable expenses from the auction, Kruse International must pay $500,000 in proceeds to FCOF by Sept. 15 before paying anyone else. After that amount has been paid, Kruse can use up to $1 million in auction proceeds to pay off others he owes.

Court documents in that case say at least 13 sellers are owed money by Kruse and have made claims to the Indiana attorney general totaling more than $580,000.

That lawsuit is one of many Kruse has faced in recent months.

In June, a DeKalb County judge ruled that Kruse owes more than $130,000 to American Express in unpaid corporate credit card bills.

Lake City Bank sued Kruse for an unpaid loan, demanding nearly $1.3 million, according to court documents filed this month. On Aug. 18, Hillcrest Bank filed a foreclosure complaint against Kruse, his wife and his companies, saying they owe more than $6.5 million on loans from 2007 and 2008.

Meanwhile, smaller lawsuits are pending in the DeKalb courts by sellers who claim they haven’t been paid after auctions.

James Tieken of Las Vegas says he’s owed $6,000 for a 1953 Ford pickup truck he sold at a Kruse auction in Las Vegas in March, according to court documents.

John and Nancy Lankerd of Middlebury consigned a 2008 Winnebago motor home at Kruse’s May auction in Auburn. The Lankerds’ lawsuit says Kruse International owes more than $109,000 for the sale and should have paid the Lankerds within 30 days. They are also asking for more than $327,000 – three times the amount owed, as per Indiana’s civil conversion law – because they allege the company used their personal property for its own benefit.

In another suit, Elegant Motors Inc. claims Dean Kruse, doing business as Classic City Motors, owes it more than $22,000.

Past recalled

Kruse has a long history of frank talk, and he’s no different in addressing his current financial troubles.

The measured, calm tones he uses in conversation at Kruse International’s headquarters are nothing like the rapid-fire auction-speak he’s famous for next door, at the auction park south of Auburn.

He blames the smaller lawsuits on cash-flow problems caused by earlier auctions for which he hasn’t been paid. He insists he wasn’t behind on his mortgage for the auction park when FCOF Midwest Credit LLC filed suit and that he had millions on deposit that the bank was supposed to draw from if his payments were in arrears.

“We feel we have a good case,” he said.

As for the other outstanding loans, he said he can pay those off by liquidating some assets, such as the experimental Mercedes-Benz once used by the Nazi Party command.

Catalogs advertising the Labor Day consignments, including the Mercedes-Benz, are stacked on Kruse’s desk in his cavernous office at the auction park, next to stacks of bumper stickers that say “Please Don’t Tell Obama What Comes After a Trillion.”

That this is Republican Country is apparent. A smiling George W. Bush looks down from a photo on a shelf. Kruse, a former state senator, was a longtime DeKalb County Republican Party chairman, and his brother is state Sen. Dennis Kruse, R-Auburn.

Success fills every corner of the massive room in the form of framed newspaper and magazine articles, photos of Kruse with celebrities and politicians, and memorabilia and collectibles.

Some of the clippings hearken back to Kruse’s phoenix-like rise from financial ruin in the late 1970s.

Thirty years ago, the Kruse Classic Auction Co. faced mounting debts to clients after its Labor Day auction. The company said its troubles were compounded after a suitcase containing $400,000 in checks and cash was lost or stolen after a Las Vegas auction in 1978.

Kruse tearfully pleaded his case to the state’s licensing board but temporarily lost his auctioneering license. He said he had fired 14 accountants, sold the company’s office building and much of his personal property, including a silver and bronze collection he said was worth $150,000.

Kruse could have filed for Chapter 11 bankruptcy. Instead, he dealt with the debts through the early 1980s by selling the company to ITT Auction Services Corp. By 1986, Kruse Inc. was back in the Kruse family’s hands, leaving it again only when Kruse sold the company to eBay in 1999. He bought it back again in 2002.

Kruse says his current problems don’t approach the scale of those earlier ordeals.

Even so, in July, the Indiana Auctioneers Association’s Board of Grievances sent a letter to Kruse, a member of the organization’s Hall of Fame. A copy of the letter, provided to The Journal Gazette by an unhappy Kruse customer, informs Dean Kruse the organization has received several recent complaints about his company and asks him to respond in writing to help the board understand.

Executive Director Kathy Baber acknowledged the group had sent the letter but said it was an internal matter and that the association is not a government body and holds no power over licensing. Kruse has not responded, she said.

The Indiana Auctioneers Association has directed customers with complaints to the Indiana attorney general’s office or advises them to seek legal counsel. A spokesman for the attorney general’s office would not say whether Kruse Inc. was being investigated.

Kruse International’s rating with the Better Business Bureau of Northern Indiana is now an F, the lowest possible grade. The BBB processed 23 complaints about Kruse in the past year, most regarding billing or collection and failures to honor contracts.

Kruse said he is conscious of the company’s reputation but points to the thick catalog for the auction this week as proof his company’s reputation is deeper than that.

“I guess the truth of the pudding is that the customers are staying loyal, and I think that’s the most important thing,” he said. “I think our auction this year proves a lot of people have faith in us.”

Unhappy customers

But a few people have lost faith. For the first time in 14 years, Randy Harnish of Bluffton won’t have a vehicle for sale at the Kruse Auction Park this week.

Harnish and his son restore military vehicles they have sold at Kruse’s Labor Day auctions for up to $30,000 a sale.

Harnish was less than impressed by what he viewed as disorganization over the past several years. But when he sold a restored military Jeep for $32,500 last fall, he expected to get paid within the 30 days specified on the contract, especially because the buyer paid the day of the sale.

When he hadn’t been paid within a month, he made dozens of phone calls and several trips to Auburn.

He was paid Jan. 20 – almost five months after the sale – and only, he said, after he threatened legal action.

“I thought that was kind of a tacky way to handle what I hope would be a good customer,” he said. “I’d get a different lie every time.”

Gary Sivak of Illinois, a first-time seller at a Kruse auction, chose Kruse’s Auburn sale in May to sell his 1979 Pontiac Trans Am. He’s owed $18,000 and hadn’t been paid as of Wednesday.

Sivak didn’t bother checking the Better Business Bureau rating when he consigned his car.

“They advertise in all the national magazines,” Sivak said. “If you’re a car guy, you see their names constantly.”

Sivak, like Harnish, said when he has called the company, he gets a different excuse every time as to why his check hasn’t come. Kruse auction officials told him he will be paid Sept. 4 if he comes to the auction park, and he’s willing to make the trip if it means he gets his money, he said.

Kevin Pierce of Tucson became one of the most vocal critics of Kruse on online message boards and in the media after spending months chasing payment for the 1969 Plymouth Road Runner he sold Feb. 28 in Tucson.

Other sellers – Harnish and Sivak – began contacting Pierce, who now keeps a list of dissatisfied customers around the country.

“They all have pretty much the same story to tell,” Pierce said. “It’s become almost like a second job, just talking to people who have been scammed by Kruse.”

aturner@jg.net