A legal brouhaha over the recent auction of a Duesenberg automobile by Tim Durham has taken a new twist, with Durham’s bank charging the financier didn’t have the right to sell the car in the first place.

The bank, New York-based Webster Business Credit Corp., said in newly filed court papers that the car serves as collateral for a $3.1 million loan to U.S. Rubber Reclaiming Inc., a Mississippi firm owned by Durham.

Webster said U.S. Rubber has defaulted on the loan. Loan documents specifically “prohibited the sale, auction or transfer of the antique automobile,” according to the filing this month in U.S. District Court in Fort Wayne.

A furor erupted soon after the car, a 1930 Duesenberg built for publishing scion William Randolph Hearst, fetched $2.9 million at a September auction at the Auburn Cord Duesenberg Automobile Museum in Auburn.

The winning bidder, James F. Scott of Charlottesville, Va., sued in December, charging Durham and other defendants committed fraud by manipulating the auction price.

The suit says the other bidder—Mark Hyman, owner of Hyman Limited Classic Cars in St. Louis—consulted throughout the auction with Michigan businessman Donald Lyons. Scott charged he later learned both men “were stakeholders and/or owners of the automobile.”

“By bidding up the price of the automobile to $2.9 million, without disclosing to the plaintiff that there were the owners or had a material financial interest in the proceeds of the sale, the sellers intentionally, artificially and surreptitiously inflated the price of the automobile,” the lawsuit charged.

Lyons—owner of home-products maker Lyons Industries Inc. as well as mayor of Dowagiac, Mich.—issued a statement late last month saying that prior to the auction he struck a deal to buy the same Duesenberg for $1 million.

Because the car already was slated to be part of the museum’s annual Labor Day auction, Lyons said he agreed to allow the sale to be finalized there—assuming he was the high bidder.

“Nobody expected that anyone would bid much more than $1 million,” Lyons said in his statement. “We thought we were being nice and doing a favor to the museum to agree to do it this way.”

The final auction price was $2.3 million higher than what Durham paid in 2003. After bidding concluded, Lyons and Hyman talked with Durham, who agreed to allow the two men to share in the proceeds of the sale, according to Lyons’ statement.

Scott said in his lawsuit that he never received title to the car, even though he paid the full $2.9 million.

Webster’s court filing says bank hold the title in its safe, and isn’t about to relinquish it.

Scott named Webster in his suit because of its security interest in the vehicle. In its response filed Jan. 4, Webster went on the offensive and filed a counterclaim. It says Scott now has the car but must return it to the bank.

The suit says Webster negotiated the collateral agreement with Diamond Investments, the Durham company that holds his automobile collection.

“Unbeknownst to WBCC, Diamond Investments and others attempted to convert the antique automobile by entering into a series of unauthorized transactions designed to hinder, delay and defraud WBCC and to avoid WBCC’s properly perfected security interest and lien,” the counterclaim says.

Ray Seach, an Indianapolis attorney representing Durham, said he could not comment until he files a response to Webster's allegations in court.

The Duesenberg lawsuit is the latest in a string of legal challenges confronting Durham, 47, who’s facing U.S. Department of Justice and Securities and Exchange Commission investigations over transactions he helped orchestrate at Akron, Ohio-based Fair Finance Co. and Dallas-based CLST holdings inc.

The U.S. Attorney’s Office in Indianapolis alleged in court papers in November that Durham operated Fair Finance as a Ponzi scheme, using the sale of new investment certificates to Ohio residents to repay prior purchasers.

He and other insiders have borrowed more than $168 million from Fair. The company, meanwhile, owes holders of investment certificates more than $200 million—a debt many purchasers fear the company can’t pay.

Other parts of Durham’s business empire also are financially strained. Muncie-based First Merchants Corp. filed a lawsuit in Fort Wayne in December charging that Sturgis, Mich.-based Classic Manufacturing Inc., a trailer-maker owned by Durham, defaulted on nearly $1 million in loans.